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.
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