On Friday, Goldman Sachs updated its assessment of Intuit Inc. (NASDAQ:INTU) shares, a financial software company, by increasing the price target to $705 from the previous $690 while maintaining a Buy rating.
The revision follows Intuit's third-quarter fiscal year 2024 earnings, which demonstrated the company's ability to sustain high free cash flow margins. Notably, Intuit has shown a consistent performance, with margins expected to exceed 32% beyond fiscal 2025.
Despite Intuit's stock declining by 8%, the company surpassed FactSet Consensus expectations in several areas. Small and Medium Business/Self-Employed (SMB/SE) segment grew by 2%, Credit Karma by 6%, total revenue by 1%, and free cash flow margins reached 58%, a 500 basis points improvement.
The market's reaction suggests that some level of outperformance had already been anticipated, and concerns were more focused on the sequential deceleration of year-over-year growth in Online Services, which was 20% compared to 24% in the previous quarter.
The analyst noted that the perceived slowdown is largely due to pricing structure changes at MailChimp in the third quarter of fiscal 2023 rather than fundamental issues.
Additionally, there's potential for Intuit to exceed consensus revenue expectations for fiscal 2025, which forecast a 12% year-over-year increase, especially if the positive signs mentioned by management continue to emerge.
Looking forward, Goldman Sachs expects Intuit to maintain strong performance. This is supported by the momentum in the Assisted category, which has a significant number of filers, and could help the Consumer Group meet long-term growth targets.
Moreover, continuous investments in generational artificial intelligence (Gen-AI) are anticipated to drive further platform adoption and product usage, offering a pricing advantage that aligns with Intuit's aspirations for double-digit organic growth.
The firm also highlighted that Intuit's investments in Gen-AI could lead to similar trends in average revenue per monthly active user as seen from fiscal 2020 to 2023, which saw a 77% increase.
With Intuit trading at 32 times its projected fiscal 2025 enterprise value to free cash flow, Goldman Sachs views the company as a durable asset that operates in accordance with the Rule of 44, which combines growth rate and free cash flow margin.
InvestingPro Insights
Intuit Inc. (NASDAQ:INTU) continues to demonstrate financial robustness, with a market capitalization of $185.42 billion, reflecting its significant presence in the financial software market. The company's ability to sustain high free cash flow margins, as noted by Goldman Sachs, is complemented by a gross profit margin of 79.1% over the last twelve months as of Q2 2024, showcasing its efficiency in generating profit relative to revenue. Intuit's commitment to shareholder returns is evident with a dividend growth of 15.38% and a track record of raising dividends for 14 consecutive years, indicating a reliable income stream for investors.
InvestingPro Tips reveal that Intuit is trading at a high earnings multiple, with a P/E ratio of 66.95, which may suggest a premium valuation. However, the company's impressive gross profit margins and status as a prominent player in the Software industry support this valuation to some extent. For investors seeking comprehensive analysis and more such insights, there are 17 additional InvestingPro Tips available for Intuit, which can be explored for a deeper investment evaluation.
Those interested in benefiting from the full range of InvestingPro features can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With a strong return over the last year and trading near its 52-week high, Intuit appears positioned to maintain its momentum in the market, aligning with Goldman Sachs' optimistic outlook for the company's future performance.
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