Intuit Inc. (INTU): Great Cash Flow, Mid Teens Growth, What More Do You Want?

Intuit’s Secular Growth Drivers

A key part of growth in the future will be Intuit’s market leading mobile applications. Its share with mobile is higher than with other channels but it remains a small part of the business. Nevertheless, when a company declares that it is achieving 3x the number of mobile downloads this year then it is clear that the long term opportunities are significant.

As for the shift to SaaS based revenues, this isn’t just about expanding the top line. Cloud based solutions encourage margin expansion because companies can cross sell their solutions to subscribers and therefore make marketing more efficient while consolidating technology costs. For example, a company like Adobe Systems Incorporated (NASDAQ:ADBE) is engineering this shift because it increases the lifetime value of a customer. It also encourages certain users to sign up for the product when they may have been using it illegally. Adobe is seeing a fall in upfront revenues as this transition takes place, but interestingly Intuit has been relatively unscathed with this issue. I think both companies will succeed.

H&R Block is trying to fight back, but so far it doesn’t appear to have taken any market share away, and with Intuit declaring that its own tax advice support operations were working well now, HRB has lost a small window of opportunity to take share.

Where Next for Intuit?

The next quarter is where Intuit usually makes 88% of its income so it is too early to definitively say how the year will go. However, the early indications for the tax season are positive. Employment is up, and online monitoring suggests that Intuit is at least holding market share on consumer tax. Looking longer term, it estimates that there are 40 million tax filers who could potentially use its service because their tax returns are simple enough to use software.

In addition, I like the strong growth in the small business group and the ongoing cash flow generation, I will continue to hold with a $71 price target.

The article Great Cash Flow, Mid Teens Growth, What More Do You Want? originally appeared on Fool.com and is written by Lee Samaha.

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