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

Buy or sell dice

Shares of Intuit Inc.INTU have been on the rise since it reported its second-quarter fiscal 2017 results. To some investors, choosing the stock may appear to be a no-brainer because right after an earnings release, a company is almost always on investors' radar. So, the period following earnings releases is often marked by high market activity. Moreover, indicators of a stock's bullish run include a rise in its share price and a continued uptrend in estimates.

Intuit reported its quarterly numbers on Feb 23, following which its shares have gained over 6% so far. The company reported adjusted income (including stock-based compensation but excluding amortization and other one-time items) from continuing operations of 7 cents per share, which surpassed the Zacks Consensus Estimate of 6 cents per share.

Intuit reported revenues of $1.016 billion, which missed the Zacks Consensus Estimate of $1.018 billion by a whisker but were up 10.1% year over year. The increase was mainly on the back of higher demand resulting from the U.S. tax season and better-than-expected growth in QuickBooks Online.

Intuit reaffirmed its fiscal 2017 guidance and issued an encouraging outlook for the fiscal third quarter.

The company anticipates revenues of $5 billion to $5.1 billion in fiscal 2017, up 7% to 9% year over year. The Zacks Consensus Estimate is pegged at $5.075 billion.

Non-GAAP operating income is expected in a range of $1.675 billion to $1.725 billion, representing growth of 8%-11%. Non-GAAP earnings per share are projected between $4.30 and $4.40 (an increase of 14-16%). The Zacks Consensus Estimate currently stands at $3.42.

For the third quarter, the company anticipates revenues in a range of $2.50 billion to $2.55 billion. The Zacks Consensus Estimate is pegged at $2.447 billion.

It expects non-GAAP operating income to be in a range of $1.50 billion to $1.52 billion. The company expects to report non-GAAP earnings in a range of $3.85 per share to $3.90 per share in the third quarter. The Zacks Consensus Estimate stands at $3.63 per share.

An encouraging top- and bottom-line guidance for the third quarter, above the respective Zacks Consensus Estimate, also helped in boosting investors' confidence about the company's future prospects.

Upward Estimate Revisions

In the last 30 days, the Zacks Consensus Estimate for the current quarter and fiscal 2017 witnessed upward revisions. For the current quarter, the Zacks Consensus Estimate is pegged at $3.63 per share, up 11 cents from earnings of $3.52 per share projected 30 days ago. Similarly, the Zacks Consensus Estimate for fiscal 2017 is currently pegged at $3.42 per share compared with $3.41 projected 30 days ago.

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.

Going forward, regular share buybacks will support the bottom line and boost shareholders' value.

Looking at these positives, we consider that Intuit is one such technology stock that deserves a place in investors' portfolio.

Notably, the stock has been clocking solid returns over the last one year and has gained approximately 32.56%, outperforming the Zacks categorized Computer-Software industry's return of 27.37%

Intuit also delivered positive earnings surprises in each of the last four quarters with an average beat of 25.84%.

Moreover, combined with other attractive features like high return on equity (ROE) and high return on assets (ROA), the stock looks very attractive. While its ROE indicates that the company is reinvesting its cash at a high rate of return, ROA is the profit that it earns for every dollar of its assets. Intuit currently trades at a ROE of 78.5%, much higher than the industry average of 23.6%. Notably, the company has an ROA of 18.5% compared with the industry average of just 11.3%.

Moreover, from a valuation perspective, the stock looks very attractive as it currently trades significantly lower than the industry average based on a forward earnings estimate. This signifies huge upward potential. Intuit currently trades at a forward P/E of 37.43x compared with the industry group average of 67.50x.

Hence, we believe that there is still much momentum left in this Zacks Rank #2 (Buy) stock, which is quite evident from its long-term earnings growth rate of 15.1%.

The stock has grabbed the spotlight with striking performances on the back of solid earnings results and robust growth projections. Keeping this in mind, we perceive that investing in this stock will yield strong returns in the short term.

Other Stocks to Consider

Other stocks worth considering in the broader technology sector are Seagate Technology plc STX , Western Digital Corporation WDC and Palo Alto Networks, Inc. PANW , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here

Seagate, Western Digital and Palo Alto have a long-tern expected earnings growth rate of 8.17%, 12.11% and 29.50%, respectively.

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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.

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