Fundsmith, an investment management company based in London, released its 2022 yearly update. A copy of the same can be downloaded here. In 2022, the Fundsmith Equity Fund declined -13.8% compared to a 7.8% decline for the MSCI World Index in sterling with dividends reinvested. However, the fund is the best performer in the Investment Association Global sector since its inception in November 2010. In addition, you can check the top 5 holdings of the fund to know its best picks in 2022.
Fundsmith highlighted stocks like Intuit Inc. (NASDAQ:INTU) in the 2022 yearly investor letter. Headquartered in Mountain View, California, Intuit Inc. (NASDAQ:INTU) provides financial management products and services to individuals, small businesses, and accounting professionals. On January 11, 2023, Intuit Inc. (NASDAQ:INTU) stock closed at $395.31 per share. One-month return of Intuit Inc. (NASDAQ:INTU) was -0.31%, and its shares lost 28.51% of their value over the last 52 weeks. Intuit Inc. (NASDAQ:INTU) has a market capitalization of $111.052 billion.
Fundsmith made the following comment about Intuit Inc. (NASDAQ:INTU) in its 2022 yearly investor letter:
“Take the example of Microsoft and Intuit Inc. (NASDAQ:INTU). Microsoft shares are currently being valued at a P/E ratio of 25.0 times the consensus EPS estimate for the fiscal year ending June 2023. Meanwhile, Intuit is being valued at 28.4 times the non-GAAP consensus estimate for the fiscal year ending July 2023. Many investors and analysts may accept that Intuit is trading at a higher multiple given expectations of greater growth potential. However, Intuit removes share-based compensation from their non-GAAP EPS whereas Microsoft does not. Given that Intuit’s GAAP EPS guidance for the year ending 31st July 2023 is $6.92–$7.22, its non-GAAP guidance is $13.59–$13.89, and the consensus estimate for 2023 EPS is at $13.69, it seems clear that most sell-side analysts are accepting the company’s non-GAAP adjustments, which includes the removal of some $1.8bn of share-based compensation, in their estimates. If we include the impact of share-based compensation in Intuit’s 2023 EPS to make a more apples-to-apples comparison with Microsoft based upon GAAP EPS, Intuit’s 2023 EPS would be closer to $9, meaning that the shares would be trading at a multiple of about 43 times. I think investors and analysts may find a premium of 14% for Intuit over Microsoft (28.4 times versus 25.0 times) to be reasonable. I’m not so sure they are fully aware that Intuit shares are actually trading at a premium of 73% if share-based compensation is treated in the same manner between the two companies.
Many investors and analysts, including us, look to cash flow metrics more than accrual profits. Unfortunately, share-based compensation may cause distortions in cash flow metrics as well, even when they follow GAAP. Under GAAP, share-based compensation is added back in the cash flow from operating activities, which in turn is used in the computation of free cash flow. ..” (Click here to read the full text)
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Intuit Inc. (NASDAQ:INTU) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 86 hedge fund portfolios held Intuit Inc. (NASDAQ:INTU) at the end of the third quarter, which was 75 in the previous quarter.
We discussed Intuit Inc. (NASDAQ:INTU) in another article and shared the list of most valuable silicon valley companies in the world. In addition, please check out our hedge fund investor letters Q4 2022 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
