A strong start to tax season helped Intuit (INTU) produce a stronger fiscal second quarter than analysts had predicted. Consensus estimates called for EPS of $.32, but 11% growth in Turbo Tax federal tax preparation products brought earnings per share of 38 cents, when stripping out one time charges like a 3 cent charge related to stock-based compensation. The web version of the program delivered the most impressive results growing by 23% from a year ago, while desktop software actually fell 1%. Company-wide sales also easily topped estimates in the quarter totaling $837 million, which was 8% growth from a year ago.
Turbo Tax is a key product for Intuit, particularly at this time of year, and the growth it has shown should be heartening to investors. Intuit has become more optimistic on growth from this division and called for fiscal year growth of 8% to12%, up from its previous outlook of 5% to 9%. This has also spurred management to up the full year earnings guidance range from $1.89-$1.96 to $1.97-$2.04. Management’s optimism is supported by better performance out of accounting software sales thanks to an improved economy which has given birth to a greater number of new businesses than at this point last year. Small business revenue grew 5% thanks to Intuit’s accounting products like Quickbooks and Quicken.
Intuit’s fiscal year results are heavily dependent on their second and third quarters which surround tax time and it generally losses money in the other half of the year. The seasonality of earnings demonstrates just how important Turbo Tax is to Intuit accounting for 42% of sales last year, so the impressive growth of the web-based version is certainly a positive sign. At Ockham, we have Intuit rated Undervalued and even with the stock trading more than 8% higher on Friday, it remains below its historically normal ranges of price-to-sales and price-to-cash earnings. Given the current fundamentals our methodology suggests that a fair price range for Intuit would be $34 to $42 per share.
The quarterly results from Intuit’s web based product illustrate that Turbo Tax is transitioning to an on-demand solution which is even more convenient to consumers. Turbo Tax has always had the advantage over other forms of tax prep that you could do taxes on your own and on your own schedule, and they continue to thrive on convenient options. For example, they are hooking into social media and even have an iPhone app. We believe one of Intuit’s biggest strengths is meeting consumers where they are, and that is clearly something that they are actively working to continue and expand.