Intuit (INTU) Looks Promising: Should You Buy the Stock?

Shares of Intuit Inc.’s INTU have been on the rise following its splendid fourth-quarter 2017 results. The indicators of a stock’s bullish run include a rise in its share price and strong fundamentals.

Rising Share Price

Intuithas been clocking solid returns on a year-over-year basis and has surged approximately 33.3%, outperforming the industry’s gain of 29.1%.

Earnings Discussion

The tax-preparation related software maker reported splendid fourth-quarter results, along with providing an overwhelming first-quarter and fiscal 2018 guidance. Intuit’s fourth-quarter results not only fared better than our estimates, but also marked a significant year-over-year improvement, primarily owing to better-than-expected growth in QuickBooks Online and ecosystem along with new and improved products.

Other Driving Factors

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.

In a move to focus more on its core tax and accounting businesses, Intuit divested three businesses last year, namely Quicken, QuickBase and Demandforce. We believe that the company’s initiatives have provided it the much needed funds to invest in and focus more on the fast-growing online businesses. The company looks forward to add more recurring revenues within its Consumer Tax and Small Business segments, capitalizing on the ongoing shift toward digital solutions. Notably, the company’s cloud-based accounting software QuickBooks Online subscriber base surged 58% year over year in fiscal 2017 to 2.38 million. Intuit’s efforts to convert itself into a cloud-based tax and accounting solution provider are encouraging.

According to a study by non-profit association CompTIA released in September 2016, over 90% of the companies surveyed utilized some form of cloud computing. Of these, only 6% have been using such solutions for five years. In contrast, 23% of the companies have been using such solutions for a period of less than a year. This indicates that the cloud market has huge growth potential. Furthermore, according to Gartner, Software-as-a-Service (SaaS) spending is estimated to increase at a four-year compound annual growth rate (CAGR) (2016–2020) of 37%. With its SaaS-based QuickBooks and Online Tax applications, we think that Intuit is well-poised to lead the market.

Additionally, the long-term EPS growth rate is currently an impressive 14.6%, suggesting pretty good prospects for the long haul. The company also delivered positive earnings surprises in the trailing four quarters with an average beat of 32.5%.

Bottom Line

Looking at these catalysts, we believe that Intuit is one technology stock that deserves a place in investors’ portfolio. Consequently, investing in this stock can yield returns in the short term.

Zacks Rank & Other Key Picks

Currently, Intuit carries a Zacks Rank #2 (Buy).

Other top-ranked stocks in the broader technology sector include Applied Materials, Inc. AMAT , NVIDIA Corporation NVDA and Micron Technology, Inc. MU. All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Materials, NVIDIA and Micron have a long-term expected EPS growth rate of 17.1%, 10.3% and 10%, respectively.

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