Foolish Forecast: Noodling Intuit

According to the jingle, Christmas is the "most won-der-ful time of the year." Not so for investors in Intuit (Nasdaq: INTU  ) . For these lucky souls, the most wonderful time of the year is tomorrow, when the tax-prep-software writer reports its earnings for the quarter in which everyone and his brother is buying copies of TurboTax. Intuit will report fiscal Q3 2006 numbers after the market closes.

What analysts say:

  • Buy, sell, or waffle? A full dozen analysts follow Intuit. Five each rate it a buy or a hold, and two call it a sell.
  • Revenues. Analysts are looking for 13% sales growth over last year. The target is $943.7 million.
  • Earnings. Profits are expected to come in 15% higher at $1.76 per share. (Note, however, that this is a "pro forma" (Latin for "what if") estimate. Intuit estimated its generally accepted accounting principles earnings at $1.67 or $1.68 for the quarter.)

What management says:
Intuit is one of those companies that, annoyingly, fails to file the majority of its press releases with the SEC for easy reference by investors. To keep yourself abreast of the latest news, your best bet is to bookmark the company's own investor relations page and check it from time to time. There you'll see, for instance, that on April 20, Intuit raised earnings guidance in response to a 20% increase in TurboTax units shipped. CEO Steve Bennett said that "TurboTax had a great finish to an outstanding season," adding that Internet-based tax services "delivered excellent growth." Combine that with "strong" performance from "QuickBooks and our other businesses," and Intuit felt confident in increasing its revenue and earnings guidance to, well, just about the same numbers that the analysts are parroting (see above).

What management does:
To get your earnings rising faster than your sales, you need to increase margins on those sales (i.e., get more efficient). Which is precisely what Intuit's been doing. Rolling gross, operating, and net margins today are all higher than they were 18 months ago.

Margins %

10/04

1/05

4/05

7/05

10/05

1/06

Gross

80.4

80.5

81.4

81.7

81.4

81.3

Op.

23.5

23.2

25.5

25.7

24.1

24

Net

17.9

17.6

18.2

18.7

18.3

19.1

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Motley Fool Inside Value lead analyst Philip Durell cautions that Intuit today "faces a renewed marketing effort by Microsoft to eat into its QuickBooks small business software empire. To date, Intuit has continued to grow its franchise despite many similar attacks from Microsoft." He expects that Intuit can "maintain its market share [but] may experience margin pressures from Microsoft's willingness to discount its product price."

On the plus side, Intuit's specific mention of its Web-based tax filing business' success proves out one of Philip's reasons for recommending the company in March 2005. Back then, he observed that the company's consumer tax division was "expected to get a boost from Web-based filing [and specifically, a new product] called SnapTax [that] enables a filer to fill out an IRS form 1040A in no more than 15 minutes." Good call, Philip.

Competitors:

  • H&R Block (NYSE: HRB  )
  • Microsoft (Nasdaq: MSFT  )
  • Automatic Data Processing (NYSE: ADP  )
  • Paychex (Nasdaq: PAYX  )
  • BMCSoftware (NYSE: BMC  )
  • Ceridian (NYSE: CEN  )

Find investors interested in Microsoft, another Inside Value pick, when you take a free trial to the newsletter and check out its discussion board.

Fool contributor Rich Smith does not own shares of any company named above.


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