Is Intuit a Good Stock to Buy?

Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Intuit (NASDAQ: INTU), a $19 billion market cap software company, offers business and financial management products for a variety of functions. It is best known for QuickBooks and TurboTax, but other products cover personal finance, payroll software, and online marketing. Year to date, Intuit’s stock price is up 18%, in line with the NASDAQ index.

The company released its 10-Q for the first quarter of its fiscal year (the quarter ended in October) last month. Net revenue for the quarter was up 13%, and net losses came in considerably lower than the same period a year ago. This isn’t incredibly relevant -- this is typically a soft quarter for Intuit, with the majority of its earnings coming in the fiscal quarter ending in April and most of the rest coming in the fiscal quarter ending in January. It’s possible that the relatively good quarter signals better numbers over the next several months as well, but we wouldn’t depend on that.

Intuit trades at 23 times trailing earnings, a valuation at which we’d want to see good growth on the bottom line. Wall Street analysts see better numbers ahead: consensus is for $2.82 in earnings per share for the crucial April quarter, which would be a 12% increase from what the company earned in the same quarter of the last fiscal year. The year as a whole is expected to result in $3.33 in EPS, implying a current-year P/E multiple of 19; the forward P/E, based on earnings for the fiscal year ending in July 2014, is 17.

It’s possible that Intuit will get to these improvements in earnings per share in part through buybacks: repurchasing activity has been somewhat limited recently, but the company has reported that a large buyback program is authorized and it did report about $560 million in cash, cash equivalents, and investments on its balance sheet. However, current assets were only slightly higher than current liabilities. We’d also expect Intuit to be less active in using its cash until it has its actual results from its peak quarter.

Our database of 13F filings reveals several hedge funds with positions in Intuit at the end of September. Billionaire Ken Griffin’s Citadel Investment Group reported a position of 1.1 million shares (check out Griffin's stock picks). Coatue Management, which is run by Tiger Cub Philippe Laffont, owned 2.3 million shares (see Laffont's favorite stocks). Generation Investment Management initiated a position of 1.6 million shares, after not owning any Intuit stock at the beginning of July; Generation is managed by former Goldman Sachs Asset Management head David Blood and former Vice President Al Gore. Find more stocks Generation has been buying.

Intuit’s closest peer is H&R Block (NYSE: HRB), with the caveat that H&R Block is more focused on professional face-to-face tax preparation while Intuit’s tax offerings are based on software for customers to complete their taxes themselves (of course, Intuit has considerable enterprise software products as well). H&R Block trades at a discount to Intuit, with a trailing P/E of 15, and also offers a dividend yield of over 4%. At first glance it might look like a better value, but we can see there being growth advantages to the software product. Analyst expectations are for earnings per share to grow 19% in its fiscal quarter ending in April -- the company’s fiscal year is identical to Intuit’s -- so they actually see more near-term growth at H&R Block. If that’s the case, H&R Block would be a better buy, but we think we’d need to research the two further before drawing any conclusions.

We can also compare Intuit to software providers SAP AG (NYSE: SAP), Adobe Systems (NASDAQ: ADBE), and (NYSE: CRM). Intuit is actually at the lower end of the valuation range of this peer group: Adobe trades at 23 times trailing earnings, while SAP’s multiple is 25 and’s is more than 100. Growth expectations are low at the first two of these companies, and so even their forward multiples are greater than 20; while reported 35% revenue growth in its most recent quarter compared to the same period in the previous year, it trades very high compared to consensus earnings for next year.

It’s quite possible that Intuit is the best buy of these four, as it at least has the sell-side forecasting moderate growth in the current fiscal year.

This article is written by Matt Doiron and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of Intuit and has the following options: long JAN 2013 $50.00 puts on Motley Fool newsletter services recommend Adobe Systems,, and Intuit. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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