Recurring revenue offers a foundation, especially if the software is essential for many customers. Corporations that operate under this model can raise their revenue and earnings by increasing prices, getting new customers, and having existing customer upgrade their accounts. Intuit (NASDAQ:INTU) has been thriving under this model for decades.
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The fintech company has several software products under its corporate umbrella, such as TurboTax, QuickBooks, Mailchimp, and CreditKarma. The company’s recurring business model, top-quality software products, and continued financial strength make me bullish on this stock.
Revenue Growth Remains Strong
Intuit has delivered several quarters of double-digit revenue growth. The company continued the trend in the second quarter of Fiscal 2024, as Intuit increased its revenue by 11% year-over-year in that quarter.
The company’s Small Business and Self-Employed Group segment delivered an 18% year-over-year increase in sales. This component of Intuit’s business generated $2.2 billion of the company’s $3.4 billion revenue total. That’s more than two-thirds of Intuit’s revenue, and it is growing at a faster pace than other segments.
Consumer Group revenue decreased by 5% year-over-year due to a later IRS opening to start the year, but the later opening should reflect favorably in the company’s third-quarter results. ProTax Group revenue increased by 8% year-over-year, while CreditKarma was flat with $375 million in revenue.
Most of the company’s segments are growing, and the fastest-growing piece of the business also happens to generate the highest percentage of Intuit’s total revenue.
Profit Margins Are Expanding
Revenue growth doesn’t tell the entire story about any corporation. Intuit continues to maintain top-line revenue growth while expanding its profit margins significantly. Intuit reported a 108% year-over-year increase in GAAP earnings per share. The stock currently trades at a 65x P/E ratio but has a more reasonable forward P/E ratio of 39x.
Higher profits have helped the company raise its dividend for several years. The fintech firm recently improved its quarterly dividend from $0.78 per share to $0.90 per share. That’s a 15.4% year-over-year increase, and that type of growth is normal for Intuit’s dividend payouts.
Rising profit margins can strengthen the stock’s valuation and lead to more gains. Intuit has already done well for investors with a 150% gain over the past five years. The stock has also gained 55% over the past year.
Guidance Has Investors Feeling Optimistic
Intuit offered guidance for the third quarter of Fiscal 2024 and the full fiscal year. The company expects 10-11% year-over-year revenue growth in the third quarter of Fiscal 2024, which ends on April 30. Full-year revenue is expected to increase by 11-12% year-over-year.
Earnings are also expected to achieve a double-digit growth rate. GAAP diluted EPS growth is expected to range from 11-15% in Fiscal 2024. The Small Business and Self-Employed Group will lead the way with 16-17% year-over-year revenue growth based on Intuit’s guidance.
Lower Interest Rates Will Strengthen the Firm
The Federal Reserve anticipates lowering interest rates three times this year. A reduced interest rate will help the entire economy by reducing the cost of borrowing money. Credit card debt and personal loans will be more affordable and attainable, and consumers will have more money available to buy goods and services.
Lower rates can also attract more business for CreditKarma, which offers various types of loans and credit cards. However, CreditKarma only contributed $375 million to the corporation’s $3.4 billion in Q2 revenue. While it’s still a sizable percentage of the company’s total revenue, it’s not as impactful as the Small Business and Self-Employed Group.
The CreditKarma business segment saw flat revenue in Q2 in a high-interest rate environment, but revenue growth should accelerate once the Fed trims rates.
Is INTU Stock a Buy, According to Analysts?
Many Wall Street analysts are feeling bullish about Intuit. The stock has a Strong Buy rating among 22 analysts, with 20 Buys and two Hold ratings. The average INTU stock price target suggests 8.3% upside potential. The highest price target of $775 indicates that the stock can rally by an additional 19%. Six analysts offered ratings for INTU stock in March, with five of them projecting that the stock will rise.
The Bottom Line on Intuit Stock
Intuit has multiple software products that generate recurring revenue. Many people rely on the company’s businesses to get loans, pay taxes, grow their businesses, and manage their finances.
The company regularly posts double-digit top-line revenue growth and net income growth at a faster rate. As profit margins expand and it grows in multiple verticals, Intuit will become a more desirable stock.
Solid guidance suggests financial growth will continue, and lower interest rates will serve as an additional catalyst. Intuit has outperformed most fintech stocks and is well ahead of the S&P 500. This growth stock offers a lot of potential for long-term investors.
