Intuit - Multi-Year Multiple Expansion Leaves Shares Expensive As Tax Season Has Ended

The Value Investor @ Seeking Alpha writes: 

Summary

• Intuit just finished a solid tax season.
• Yet the outlook for the already seasonally weak fourth quarter is soft.
• Shares relied on multiple expansion in recent years for their returns, outpacing operational growth.

Intuit (INTU) the provider of financial management solutions for small businesses, consumers and financial providers released its so-important third quarter results which cover the tax season on Tuesday after the market close.

The results were largely in line with consensus estimates both in terms of revenues and earnings as a weak guidance for the already seasonally soft fourth quarter put pressure on shares.

Third Quarter Headlines

Intuit reported third quarter revenues of $2.39 billion which is up 14% compared to last year.

Reported net earnings improved by nearly 20% to $984 million, coming in just shy of a billion. Thanks to modest share repurchases, the growth in earnings per share was more pronounced. Earnings per share advanced by 25% to $3.47 per share.

Strong Tax Season

Intuit reported 8% sales growth for its small business operations, driven by the performance of the management solutions subdivision.

The consumer side of the business fared even better with a reported 13% revenue growth. The number of TurboTax units being delivered online rose by 14%.

The professional tax business was the best performing business, displaying a 32% jump in revenues thanks to aggressive customer acquisition strategies.

A Peak Into The Final Quarter

For the current fourth quarter, Intuit anticipates revenues of $683 to $713 million and foresees GAAP operating losses between $26 and $46 million. This implies that losses are seen between $0.10 and $0.12 per share.

This guidance is quite weak as Intuit previously anticipated a loss of just $0.02 to $0.04 per share on revenues of $710 to $720 million.

Based on the revised fourth quarter outlook, annual revenues are foreseen between $4.475 and $4.505 billion which would represent a 7-8% growth rate. GAAP operating earnings are seen at $1.325 to $1.345 billion which translates into GAAP earnings between $3.08 and $3.12 per share.

Valuing The Business

Intuit ended the quarter with $2.6 billion in cash, equivalents and investments. Total debt stands at $0.5 billion, resulting in a net cash position of $2.1 billion. Note that due to the seasonality of the business cash holdings tend to peak in the third quarter.

At $74 per share, Intuit is valued at $21 billion. This values operating assets at roughly $20 billion, the equivalent of 4.4 times annual revenues and 22-23 times GAAP earnings.

Intuit pays a quarterly dividend of $0.19 per share for a yield of merely 1.0%.

Waiting For Good Times

Intuit's business typically peaks in the second and in particular the third quarter as consumers and small businesses prepare their tax filings ahead of the deadline.

Intuit's offerings including TurboTax aid those individuals in preparing their tax filing as well as identifying tax savings. Potential savings and simplicity of the software outweigh the costs for consumers who file their taxes through TurboTax or seek a professional adviser.

Yet with the tax filing season being over, Intuit is facing slow months again as the business continues to lose money ahead of the next tax filing season.

Concerns about softness to come is the main overhang of the earnings release despite the marketing talk of the company's successful transition to the cloud as well as outpacing growth in non-tax related businesses.

The company has a long term track record of growing its revenues in a profitable manner while retiring its share base gradually. While shares traded in a $20-$30 range between 2004 and 2009, shares have tripled ever since. This made shares too expensive to my taste trading at earnings multiples in their low twenties.