Turbo Taxing with Intuit (INTU)
4-15-07: As the official tax filing deadline approaches, Intuit (INTU) comes to mind. We realize INTU is more than a tax preparation software company, but since this is tax season, we will concentrate on their main product, Turbo Tax. Remember, this year we have until April 17th since the normal April 15th falls on a Sunday. If you have not already filed, we suggest you get to it before the IRS comes calling. In case you might not be aware, the IRS allows free online filing at www.irs.gov. We have not tried it, but have heard it works well if your tax is straight forward. If you are the type that prefers to do things on your own, the best tax software in our view is Turbo Tax from Intuit (INTU). The professional version is very easy to use and works quite well. It is almost as good as our accountant.
While Turbo Tax is not for everyone as some tax payer needs special attention that can only be met by an accountant or a profession tax preparer, the product does offer a lot help which allows people to reduce the headaches that comes with filing taxes. Much like a tax preparer would, the product will ask series of questions and figure out the best method that is advantages to the tax payer. The product will import your W-2 straight from companies like Paychex and ADP, reducing potential errors. Overall, we give the product two thumbs up!
INTU is trading near its 52 week lows at approximately $28 per share. The recent cancellation of its planned merger with Electronic Clearing House (ECHO) is probably in the best interest of INTU as ECHO appears to be in a world of hurt with the government. In addition to the merger cancellation with ECHO, Turbo Tax is now be facing more intense competition from other tax preparation software such as TaxCut from H&R Block and of course, the free filing at www.irs.gov (albeit, IRS free filing has been available several years now). Despite these negatives, we believed INTU is still a solid company with predictable revenue. At the current price of $28 per share, it is our opinion the stock is currently undervalued.
What we like about this stock is Turbo Tax is synonymous with tax filing software as Google is to search. In many respect the company has achieved a consumer monopoly. Ask anyone to name a tax filing software; 9 out of 10 will likely say Turbo Tax. There are obviously many competitors in this space, but Turbo Tax is the most popular retail tax preparation software on the market. We do not foresee this changing in the near future. As more people become more comfortable filing their own taxes, we believed the best company that stands to benefit from this trend is Intuit. To this end, the future prospect looks good as the number of online tax filing continues to grow year over year.
This following is pure speculation, but if INTU fails to grow, a leverage buyout is very much possible from a private equity firm. It would be a large purchase, but certainly not out of the range of possibility. We also see a strong case where INTU would be a candidate for acquisition by one of its competitors. We believed a company like Microsoft would be a nice fit.
Due to tax season and increased number of people choosing to file their own taxes, we believed INTU should be trading in the mid $30 range when the company reports its next quarterly earnings. Our 12 month target price for INTU is $37 per share. Trading at $28 per share, it is our opinion, the potential for upside outweighs the downside.
Comments
Are you aware that on 07/07/06 there was a 2 for 1 split?
This, in my opinion reduces some of the luster on a buy recommendation. I think that after tax season stock goes into nibernate.
Thoughts?
Posted by: pat durante | April 16, 2007 10:31 AM