Foolish Forecast: Intuit Closes the Books

Tax-prep star Intuit (Nasdaq: INTU  ) closes out its fiscal year 2008 with an earnings report tomorrow afternoon. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell or waffle? Fourteen analysts track Intuit, giving it seven buy ratings, five holds, and a pair of sells.
  • Revenues. On average, they expect revenue to rise 9% to $470 million.
  • Earnings. But losses could quadruple to $0.08 per share.

What management says:
The big news this quarter: Intuit is refocusing on pursuing growth in the "social networking and mobile technology trends," and 575 employees are paying the price.

But there's a (sort-of) happy ending to this story. I learned last week that a small band of former Intuit employees has set up shop as "ASAP Business Solutions, LLC." With (moral, at least) support from their erstwhile employer, they're going to keep on providing independent support to "QuickBooks" and "QuickBooks Point of Sale" customers.

What management does:
Intuit picked a strange time to start rolling heads, though. Last quarter marked a material turnaround in its profitability trends. After falling for three straight quarters, the rolling gross margin perked back up, pulling operating and net margins up with it.

This extended Intuit's operating margin lead over H&R Block (NYSE: HRB  ) , and closed the gap with Jackson Hewitt's (NYSE: JTX  ) superior 26%-plus margin. Meanwhile, over on the small-business accounting side of things, Intuit is racing ahead of ADP (NYSE: ADP  ) -- but not as fast as Paychex (Nasdaq: PAYX  ) is.

Margins

1/07

4/07

7/07

10/07

1/08

4/08

Gross

82.9%

83.2%

82.1%

81.5%

81.1%

81.9%

Operating

23.2%

25.4%

23.9%

22.9%

20.8%

22.7%

Net

15.6%

17.2%

16.5%

17.3%

15.7%

17.4%

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

One Fool says:
So here's the point where I tell you to run out and buy Intuit before the earnings break, right?

Wrong. Instead, I'm standing by my math of yester-quarter: Over the past 12 months, Intuit generated $501 million in free cash flow, which at today's stock price gives the shares a 19-times multiple to cash profit. That was already too expensive relative to the 15% earnings growth analysts were soothsaying last quarter. Now that they've dropped their estimates to just 13% long-term growth, the analysts have basically vaporized any margin of safety we might once have thought this stock had.

Time to go back into wait-and-see mode, Fools. Wait for an unreasonable sell-off. When it happens, see if the valuation looks any better.

Check out how Intuit's been doing recently in:

Fool contributor Rich Smith owns shares of Jackson Hewitt. Paychex is a Motley Fool Income Investor pick. Jackson Hewitt Tax Service is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days. You don't have to intuit The Motley Fool's disclosure policy. You can read it right here.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 09, 2008, at 11:09 AM, ghotioutofwater wrote:

    I be interested in Motley Fools statement on Intuit supporting its former employees starting up competition in the technical support field. The 575 employees that were let go, were also promised that they could perform services comparable to their former position. In fact every Intuit employee that is released from their obligations at Intuit, have a 6 month waiting period before they can provide services on QuickBooks products. Now seeing that Intuit has a board of lawyers just waiting to pounce on anyone not conforming to the company standard. It will be interesting to see what the company does over the next few months.

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