Intuit (INTU) is a financial software company, valued at $160.5 billion, that specializes in making financial management tasks easier for individuals, accountants, and small businesses. The company just reported another strong quarter and announced a bold 15% dividend hike, which has analysts optimistic about the company's long-term prospects.
The demand for digital financial solutions is increasing. Intuit has integrated artificial intelligence (AI) into all of its products, resulting in increased efficiency. Its diverse portfolio includes Credit Karma, QuickBooks, and TurboTax, among others.
Despite another strong quarter, the stock is down 8.4% year to date, compared to the S&P 500 Index's ($SPX) 12.2% gain - which might be a good opportunity to grab this growth stock now. Let's find out why.
Intuit Reported Another Strong Quarter
In the third quarter of fiscal 2024, Intuit's revenue increased 12% year-on-year to $6.7 billion. Adjusted earnings per share (EPS) rose 11% to $9.88 in the third quarter. Revenue and earnings increased sequentially, by 97% and 275%, respectively, indicating rising demand for Intuit's products.
The strong performance in its major segments during the quarter, including Small Business and Self-Employed, which increased 18% year on year, drove this performance. Plus, its other two segments, Consumer and Credit Karma, increased by 8% and 9%, respectively.
In addition to being a growth stock, Intuit also generates income for investors. Its forward dividend yield of 0.63%, compared to the technology sector average yield of 1.4%, is not particularly appealing on its own.
However, its aggressive dividend hikes are of interest to passive income investors. In the recent third quarter, Intuit’s board approved a 15% year-on-year dividend hike to $0.90 per share, payable in July 2024. The company also repurchased $584 million of shares.
Furthermore, its forward dividend payout ratio of 18.8% indicates that dividend payments are sustainable, with the potential for further increases. The company has increased dividends for the past 11 years, demonstrating consistency in dividend payments and growth. At the end of the quarter, the company's cash and investments totaled $4.7 billion, with $6 billion in debt.
Management expects revenue growth of 13% to 14% in the fourth quarter, with adjusted earnings arriving between $1.80 and $1.85.
Due to strong growth in the Small Business and Self-Employed Group, Intuit increased its full-year fiscal 2024 revenue target to 13%, from the previous range of 11% to 12%. Adjusted earnings per share are also expected to rise by 17%, compared to the prior target of 12% to 14%.
Analysts predict a 12.7% increase in revenue to $16.19 billion, accompanied by a 16.8% increase in earnings.
Revenue and earnings are expected to rise 12.0% and 13.5%, respectively, in fiscal 2025. The stock is trading at 30 times projected earnings for 2025 and eight times projected sales.
What is Wall Street Saying About Intuit Stock?
Following its Q3 results, DBS analyst Tsz Wang reiterated the stock's "buy" rating with a target price of $760. The analyst believes Intuit is well-positioned to capitalize on current digitalization trends. Wang's positive outlook is also influenced by Intuit's strong revenue growth trajectory and optimistic future outlook.
Wang is also impressed by Intuit's commitment to research and development (R&D), which he believes will help the company's brand presence. For context, Intuit spent $2.02 billion on R&D during the nine months ending April 30, 2024.
Barclays also backed a “buy” rating, with a target price of $745.
Out of the 27 analysts who cover INTU stock, 23 have given it a "strong buy," while four have a “hold” rating. Based on the mean target price of $693.04, INTU stock has an upside potential of 21.5% from current levels.
Plus, the high target price of $770 suggests that the stock could rise 34.5% over the next 12 months.
The Bottom Line on Intuit Stock
With a proven track record of growth, strategic acquisitions, and innovation, Intuit is well-positioned to succeed in the fintech sector. While Intuit appears to be an expensive buy right now, its AI-driven innovative, and diverse portfolio of successful products has the potential to drive revenue and earnings as the fintech industry advances, making it a good long-term buy-and-hold stock.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
