Shares of Intuit Inc. INTU hit a new 52-week high of $109.37 on Jun 29, eventually closing at $109.29. The stock has delivered a strong one-year return of 7.6% and a year-to-date return of 13.3%. The average trading volume for the last three months aggregated approximately 1.4 million.
What is Driving the Stock Upward?
Intuit’s shares have been on the rise ever since the company declared better-than-expected third-quarter fiscal 2016 results on May 24, 2016. Also, an encouraging fourth-quarter fiscal 2016 outlook, a strong cash position and share repurchase drove Intuit shares higher.
The company reported adjusted earnings (including stock-based compensation but excluding amortization and other one-time items) from continuing operations of $3.27 per share, which fared better than the Zacks Consensus Estimate of $3.03. Moreover, on a year-over-year basis, adjusted earnings surged 24.3%. The bottom line was mainly driven by higher revenues, efficient cost management and a lower share count.
This tax-preparation related software maker reported revenues of $2.304 billion, which came above management’s guided range of $2.210–$2.260 billion and surpassed the Zacks Consensus Estimate of $2.246 billion as well. On a year-over-year basis too, revenues were up 7.9% mainly on the back of the company’s ongoing transformation into a global cloud company and higher demand resulting from the U.S. tax season.
Bolstered by the solid performance, Intuit raised its fiscal 2016 guidance and issued an encouraging outlook for the fiscal fourth quarter.
The company now anticipates revenues of $4.660 billion to $4.680 billion, up from its earlier guidance of $4.525–$4.600 billion. The Zacks Consensus Estimate is pegged at $4.661 billion.
Non-GAAP operating income is now expected in the range of $1.490 billion to $1.510 billion, up from the previous projection of $1.450–$1.480 billion. Non-GAAP earnings per share are now projected between $3.63 and $3.65, up from the prior guidance of $3.45–$3.50. The Zacks Consensus Estimate currently stands at $3.03.
For the fourth quarter, the company anticipates revenues in the range of $720 million to $740 million. The Zacks Consensus Estimate is pegged at $738 million. While the company expects to break even on a non-GAAP in the fourth quarter, the Zacks Consensus Estimate stands at a loss of 23 cents.
With respect to earnings surprise, this Zacks Rank #3 (Hold) stock surpassed the Zacks Consensus Estimate in the last four quarters with an average surprise of 74.5%.
An encouraging fourth quarter and fiscal 2016 outlook and a bright overall trend resulted in upward estimate revisions for Intuit. Over the last 60 days, all the four estimates for Intuit were revised upward for fiscal 2016. The Zacks Consensus Estimate for fiscal 2016 went up 8.6% to $3.03.
Moreover, the stock looks attractive from a valuation perspective. This is because Intuit currently trades at a forward P/E of 35.04x as against the industry group average of 98.00x, which signifies a huge upward potential.
Furthermore, we are positive about Intuit’s growing SMB exposure and believe that its strategic acquisitions will boost the segment. Increased adoption of its cloud-based services and products is another positive.
However, rising competition from payroll solution providers such as Paycom Software Inc. PAYC and Automatic Data Processing ADP is a concern, especially considering the seasonality of Intuit’s tax business and the ongoing economic uncertainty.
Currently, Intuit has a Zacks Rank #3 (Hold). A better-ranked stock worth considering in the technology sector is Amazon.com, Inc. AMZN, which sports a Zacks Rank #1 (Strong Buy).
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