Morgan Stanley Drops Bearish Intuit Stance, Points To Tax Season Catalysts

Morgan Stanley's bearish stance on Intuit Inc. INTU, which dates to September 2016, is no longer justifiable ahead of multiple catalysts that should result in more durable revenue growth, in the sell-side firm's view. 

The Analyst

Analyst Keith Weiss upgraded Intuit from Underweight to Equal-weight with a price target lifted from $172 to $225.

The Thesis

Intuit has "multiple irons in the fire" ahead of the upcoming tax season, with new products in the consumer segment (TurboTax Live) that should bode well in a less competitive and different environment compared to prior years, Weiss said in the Monday upgrade note.

The small business segment should benefit from new initiatives, including shifting the legacy installed base to QuickBooks Online Enterprise, or QBO, the analyst said. 

If Intuit has a successful tax season, the momentum could be sustainable, as the software company introduced several initiatives to improve customer retention, Weiss said. One example: connecting QBO subscribers to a network of accountants. Fifty-eight percent of customers have taken advantage of the feature, he said.

Other initiatives to improve the platform include making it simpler for QBO customers to connect a third-party app, and those who have done so resulted in a six-point improvement in retention, according to Morgan Stanley. 

Despite multiple catalysts ahead, the Street is forecasting a deceleration in Intuit's revenue growth from 15 percent in 2018 to 9 percent, Weiss said.

While this figure looks "extremely conservative," it is balanced by ongoing concerns that the company is mix shifting toward lower-margin businesses that minimize EBIT growth potential, making for a balanced risk-reward profile, according to Morgan Stanley. 

Price Action

Shares of Intuit were trading higher by 1.8 percent Monday morning.

Related Links:

BofA, Guggenheim Positive On Intuit Ahead Of Tax Season

Stifel: 3 Reasons To Like Intuit

Photo courtesy of Intuit.