Intuit stock (NASDAQ:INTU) could be heading toward new all-time highs. The innovative tax preparation and accounting software giant has managed to sustain strong revenue and earnings growth momentum lately that seems poised to last. Impressively, the market expects that Intuit’s growth will even accelerate in the coming years. Therefore, despite the stock’s valuation appearing bloated, I believe that INTU stock is set to maintain its upward trajectory. Accordingly, I am bullish on the stock.
Double-Digit Growth Momentum Stays Strong
Intuit’s double-digit growth momentum continues to stay strong, a trend that has persisted for decades at this point. Remarkably, with the exception of 2015, the company has consistently achieved record-breaking revenues since at least 1993, as far back as accessible data allows. Despite such a mature three-decade-old track record, Intuit’s revenues have maintained impressive growth rates. The 10-year compound annual growth rate (CAGR) leading to FY 2023 stood at 13.8%.
In its latest Q2-2024 earnings report, Intuit retained its ever-lasting double-digit growth momentum, with revenues climbing by 11% to $3.4 billion. In my view, Intuit’s continuous success can be attributed to two factors.
First, it’s about the resilience of its tax preparation solutions. This “industry” is naturally recession-proof, owing to the unavoidable nature of paying taxes. From this, Intuit enjoys robust retention rates. Secondly, the increasing adoption of in-house tax preparation among entrepreneurs and small businesses serves as a powerful long-term growth driver. Thus, by repeatedly retaining existing users and adding new cohorts, Intuit’s revenues are propelled to new highs with each passing comparable period.
Small Business and Self-Employed Segment
Intuit’s Q2 revenue growth mix illustrates this rationale. In its Small Business and Self-Employed division, the company posted revenue growth of 18%. This was, in turn, driven by QuickBooks Online Accounting revenue growth of 19% in the quarter, which mainly benefited from customer growth and higher effective prices.
Intuit’s Online Services revenue, which also falls under this division, registered revenue growth of 24%, mainly due to growth in payroll, payments, and Mailchimp (an email marketing tool). Finally, Intuit’s international online ecosystem revenues rose by 16% in constant currency, with the company making advancements outside of the U.S.
Credit Karma Segment
On the less exciting front of Intuit’s report, the Credit Karma (a personal finance company) division posted flat revenues year-over-year, partially offsetting the robust growth recorded in the Small Business and Self-Employed division. This was to be expected, however. I don’t see the sluggish Credit Karms performance as worrisome, as this division tends to follow macro trends. With interest rates hovering at elevated levels lately, it is only natural to see some downshift.
While Credit Karma Money, credit cards, and auto loans did show some strength, management reported weakness in home loans, personal loans, and auto insurance. In fact, the company saw some key partners staying prudent when it came to extending credit in personal loans or credit cards in the second quarter, which is in line with the current interest rate environment.
Momentum to be Sustained in Subsequent Quarters/Years
Intuit’s management expects the company’s ongoing momentum to last. They forecast full-year revenues to land between $15.890 billion and $16.105 billion, implying a year-over-year increase between 11% and 12%.
Interestingly, Wall Street expects Intuit’s growth to reaccelerate from there. Consensus estimates point to growth of 11.7% this year, in line with management’s guidance. From there, they expect growth of 12.5%, 12.9%, and 13.3% in FY 2025, FY 2026, and FY 2027, which maps a slow but gradual acceleration.
I believe this can be attributed to Credit Karma’s growth picking up as the macro environment potential improves in the coming years. The fact that Credit Karma held revenue growth back due to the current macro landscape implies that once interest rates ease and Credit Karma resumes contributing to the top line, Intuit’s overall growth could reaccelerate – hence the market’s forward estimates.
The Valuation Isn’t Crazy
One could argue that while Intuit’s growth remains impressive, the stock’s rally could face headwinds moving forward as its valuation seems sort of crazy at its current levels. However, I believe that Intuit’s current premium, with shares trading at nearly 40 times Fiscal 2024 EPS (the Fiscal period ends June 2024), is justified.
First, the company has a massive moat, accounting for nearly 74% of the industry’s total revenue. Then, as previously highlighted, Intuit’s business has demonstrated strength in the face of economic downturns, with revenues poised for continued rapid expansion, even during potential recessions. We have witnessed this resilience through every unfavorable market cycle since the company’s initial public offering in 1993.
Adding to these points, continued double-digit growth and Intuit’s margins undergoing an expansion promise to fuel robust EPS growth. Analysts expect EPS to rise at a CAGR of 16.9% over the next five years. Therefore, Intuit should be easily able to grow into its seemingly hefty valuation, with the stock likely to reach new highs as past estimates are met and new ones drive expectations over time. We’ve seen this theme consistently over the years, with Intuit often trading at significant premiums.
Is Intuit Stock a Buy, According to Analysts?
Wall Street seems to see further price gains moving forward, as well. Specifically, Intuit maintains a Strong Buy consensus rating based on 20 Buys and two Holds assigned in the past three months. At $705.62, the average Intuit stock forecast implies 8.6% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell INTU stock, the most profitable analyst covering the stock (on a one-year timeframe) is Alex Zukin from Wolfe Research. He features a success rate of 84% and an average return of 37.03% per rating. Click on the image below to learn more.
The Takeaway
To sum up, it seems that Intuit’s journey toward new all-time highs appears set, powered by its enduring double-digit growth momentum and the overall resiliency of its business model. Despite concerns about the stock’s valuation, I think that Intuit’s industry dominance, combined with its proven ability to weather economic downturns, justifies the current premium.
With the ongoing revenue growth momentum poised to last and EPS growth set to keep impressing, it’s reasonable to support that the stock’s bullish sentiment will remain strong, moving forward.
