Markets

Intuit (INTU) Downgraded to Strong Sell on Dismal Trends

On Aug 25, 2015, Zacks Investment Research downgraded Intuit Inc.INTU to a Zacks Rank #5 (Strong Sell). Going by the Zacks model, companies holding a Zacks Rank #5 are likely to underperform the broader market.

Why the Downgrade?

The company recently reported fourth-quarter fiscal 2015 results, wherein it incurred an adjusted loss per share of 23 cents (including stock-based compensation but excluding amortization and other one-time items) from continuing operations. The loss was wider than the year-ago quarter loss of 15 cents per share.

Also, revenues of $696 million came below the guided range of $720 million-$745 million and missed the Zacks Consensus Estimate of $740 million.

The company reported 14.6% year-over-year increase in adjusted operating expenses, primarily due to higher research & development, selling and marketing and general & administrative expenditure. Higher operating expenses resulted in an adjusted operating loss of $86 million, which compared unfavorably with $47 million operating loss suffered a year ago.

Intuit issued weak top-line guidance for the first quarter and fiscal 2016. The company expects revenues in the range of $4.525 billion-$4.600 billion in fiscal 2016. The mid-point of $4.563 billion is in line with the Zacks Consensus Estimate.

For the first quarter, the company expects revenues in the range of $660 million-$680 million. The Zacks Consensus Estimate currently stands at $669 million.

Intuit, recently, announced its plan to divest three units, including the well-known Quicken home-accounting software. Intuit believes the divestitures will lower fiscal 2016 revenues by approximately $250 million and have a negative effect of 10 cents per share on non-GAAP earnings.

Moreover, from a valuation perspective, the stock does not look very attractive as it currently trades significantly higher than the industry average based on a forward earnings estimate. This indicates a possible downward movement. Intuit currently trades at a forward P/E of 27.50x as against the industry group average of 15.30x.

Furthermore, intense competition from Microsoft MSFT and H&R Block, which are also focusing on the SMB accounting and payroll space, and low barrier to entry in online software remain headwinds.

Stocks to Consider

Not all technology stocks are performing as poorly as Intuit. We recommend NetApp Inc. NTAP and Amazon.com Inc. AMZN , both of which sport a Zacks Rank #1 (Strong Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

AMAZON.COM INC (AMZN): Free Stock Analysis Report

MICROSOFT CORP (MSFT): Free Stock Analysis Report

NETAPP INC (NTAP): Free Stock Analysis Report

INTUIT INC (INTU): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

AMZN MSFT INTU NTAP

Other Topics

Stocks