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Intuit (INTU) Up 8.4% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Intuit (INTU). Shares have added about 8.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Intuit due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Intuit Reports Solid Q3 Results

Intuit reported impressive third-quarter fiscal 2019 results. Its non-GAAP earnings came in at $5.55 per share, surpassing the Zacks Consensus Estimate of $5.39. The figure also increased 15% on a year-over-year basis. Moreover, the metric exceeded management’s guided range for earnings of $5.35-$5.40 per share.

This tax preparation-related software maker’s revenues grossed $3.27 billion, up 12% from the year-ago quarter. The top line narrowly outpaced the consensus estimate of $3.26 billion. A healthy tax season was the key growth driver. Strong momentum in online ecosystem was also a tailwind.

Quarter in Detail

Segment wise, Small Business and Self-Employed Group revenues jumped 19% year over year to $887 million. This improvement was primarily driven by 32% subscriber surge for QuickBooks Online, which brought the count to more than 4.2 million at the end of the fiscal third quarter.

Online ecosystem revenues surged 38%. The U.S.-based subscribers of QuickBooks Online grew 25% to more than 3.1 million while international subscribers jumped 55% on a year-over-year basis to more than 1.1 million.

Online services witnessed slow year-over-year growth this quarter compared with the trailing four quarters. This was because of a difficult comparison due to last year’s acquisition of TSheets.

Self-Employed subscribers within QuickBooks online rose to around 970,000 from 680,000.

Solid momentum of the company’s lending product, QuickBooks Capital, is a positive.

Desktop ecosystem revenues rose 4% year over year. A 12% rise in desktop units reflected strong renewables during the quarter. QuickBooks enterprise customers within Desktop ecosystem continued to grow steadily at a double-digit pace.

For the fiscal third quarter, revenues from Consumer Group jumped 10% year over year to $2.2 billion while the same from Strategic Partners Group grew 4%.

Within the Strategic Partner group, professional tax revenues of $208 million were up 4% year over year.

TurboTax Live’s customers tripled year over year, and it is likely to be accretive to the company’s Consumer business, going ahead.

Operating Results

The company posted non-GAAP operating income of $1.9 billion compared with $1.7 billion in the year-earlier quarter. Operating margin increased 8 basis points to 58.1%.

Balance Sheet and Cash Flow

Intuit exited the quarter with cash and cash equivalents of $2.95 billion compared with $1.081 billion in the previous quarter. Long-term debt was $398 million compared with $363 million in the prior quarter.

Cash used in operational activities was $2.4 billion as of Apr 30, 2019.

In the fiscal third quarter, the company repurchased $135 million worth of shares with $2.8 billion remaining under its share repurchase authorization.

Moreover, a quarterly dividend of 47 cents per share, payable Jul 18, was approved.

Outlook

The company raised guidance for fiscal 2019. Revenues are now projected in the range of $6.74-$6.76 billion, up from the previously guided range of $6.53-$6.63 billion. Non-GAAP earnings per share are anticipated between $6.67 and $6.69 compared with the earlier expected range of $6.4- $6.5.
 
Non-GAAP operating income for the fiscal year is expected to be in the range of $2.26-$2.27 billion, which is higher than the earlier guidance of $2.17-$2.22 billion.

Total subscriber growth is expected to be moderate due to greater focus on additional services, and penetration into a broader range of customers.

During fiscal 2019, QuickBook Desktop units and Desktop ecosystem revenues are expected to be flat.

Online ecosystem revenues are likely to grow more than 30% during fiscal 2019.

Within the Strategic Partner Group, professional tax revenues are expected to jump 4%.

For the fiscal fourth quarter, the company envisions revenue growth of 10-12% at the range of $948-$968 million. It expects non-GAAP loss within 16-14 cents per share.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months. The consensus estimate has shifted 10.53% due to these changes.

VGM Scores

Currently, Intuit has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Intuit has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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