Intuit (NASDAQ:INTU) is a leader in tax preparation software. With the Supreme Court having effectively ended the Defense of Marriage Act this week, there is an expectation that thousands of same sex couples who married legally will now be redoing their taxes for the last three years. Many of them may go to their local CPAs, but Intuit stands to reap a good share of benefit since it can sell software covering the last three years with little extra expense.
Intuit Inc. (NASDAQ:INTU) as a business looks very good in terms of its fundamentals. They have a clean balance sheet with about $2 billion in cash and only about $500 million in debt. The valuation is reasonable with a current price-to-earnings ratio of about 20 and a forward price-to-earnings ratio for 2014 of about 16. It pays a dividend yield of 1.2% which is a nice bonus.
Its competitors stand to gain as well. H&R Block, Inc. (NYSE:HRB) may gain some revenue, but its business is geared more to just before tax time, and this is an odd time of the year to be doing tax preparation so the upside is limited here. H&R Block, Inc. (NYSE:HRB) has a more reasonable valuation with a current price-to-earnings ratio of 18 and pays a better dividend yield of 2.8%. At this point, however, I don’t see them benefiting as much as Intuit from this particular windfall.
In addition, Intuit Inc. (NASDAQ:INTU) also handles payroll. As same-sex couples add their partners to their job benefits this could be a plus as well. For a better play on this angle, however, I would go to a company that handles benefits for larger companies such as Automatic Data Processing (NASDAQ:ADP), or ADP. ADP handles business outsourcing, including human resources services, tax management and payroll. ADP should benefit from this surge, but likely not as much as Intuit. Automatic Data Processing (NASDAQ:ADP) is also more richly valued with a price-to-earnings ratio of 23 or so, but it does offer a decent dividend yield of 2.5%.
Intuit Inc. (NASDAQ:INTU) is uniquely poised to benefit from these events in which large numbers of people have to restate their taxes. Most of the sam- sex couples involved will be revising the last three years of taxes as allowed by current law. Intuit has software developed and ready to go for those years. All of the development costs have been paid for already, so any additional sales will simply be gravy with very high margins. I would expect a significant increase in earnings-per-share and revenues for the next quarter.
Intuit Inc. (NASDAQ:INTU) has already been surprising to the upside with a 13% increase in revenue last quarter compared to an industry average of less than 3%. This increase in revenues is no fluke. I believe that as U.S. tax law continues to increase in complexity, Intuit stands to keep gaining customers. Another potential source of new customers may come soon as well with the immigration reform bill working its way in Congress. The people affected by immigration reform will have to pay back taxes and start paying federal taxes before they can hope to become U.S. citizens. This would represent a large influx of new customers, especially if Intuit makes a Spanish version of its software.
All in all, I see a bright future for Intuit Inc. (NASDAQ:INTU). The fundamental valuation of the company is good, with a price-to-earnings ratio in line with the general market and revenue growth in the double digits. Events such as the SCOTUS decision to effectively invalidate DOMA should bring in even more revenue with high margins. Congress is unlikely to scrap the current tax code, and it continues to gain in complexity on a regular basis. That complexity guarantees that Intuit will continue to see healthy cash flows as far as the eye can see.
The article Buy Intuit As Increased Revenue Is Expected From the Death of DOMA originally appeared on Fool.com and is written by Erick Santos.
Erick Santos, M.D., Ph.D. has no position in any stocks mentioned. The Motley Fool recommends Automatic Data Processing and Intuit. The Motley Fool owns shares of Intuit. Erick is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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