Why Morgan Stanley Is Upgrading Intuit, DocuSign

Morgan Stanley analysts turned bullish on Intuit Inc. INTU and Docusign Inc DOCU Monday, noting that both companies are trading at reasonable valuations given an impressive growth profile ahead.

The Intuit, DocuSign Analysts: Keith Weiss upgraded Intuit from Equal-weight to Overweight with a price target lifted from $315 to $400.

Stan Zlotsky upgraded Docusign from Equal-weight to Overweight with a new $260 price target.

The Intuit Thesis: Intuit's management made it clear at its September investor day event that its strategic growth outlook has fundamentally changed for the better, Weiss said in an upgrade note.

Intuit is shifting away from focusing on growing the customer base to improving revenue per customer growth, the analyst said. 

The company grew its non-GAAP operating margins from 33.1% in fiscal 2016 to 34.7% in 2020, but a focus on growing revenue per customer through higher-value solutions should result in a 125-basis-point annual improvement in 2021, 2022 and 2023, he said.

A durable longer-term double-digit revenue growth rate and EPS growth of 20% implies the stock's 2.1 times PEG ratio looks more attractive versus peers, Weiss said. 

Intuit's risk-reward profile is positive, and the stock has upside potential of more than 20%, according to Morgan Stanley. 

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The DocuSign Thesis: The bullish case for DocuSign's stock is "more compelling than ever," and shares deserve a premium valuation for three reasons, Zlotsky said in an upgrade note.

First, recent COVID-19 tailwinds have resulted in durable trends, including strong new customer acquisition, healthy renewable rates and upselling opportunities.

Second, DocuSign targets an attractive addressable market from a "dominant competitive positioning," the analyst said.

Third, the company's growth and profit outlook is superior to many of its SaaS peers, he said.

Morgan Stanley's new base-case $260 price target is "conservative," and there is room for further upside, Zlotsky said.

DOCU, INTU Price Action: Shares of Intuit were higher by 2.65% at $330.43 at last check Monday, while shares of DocuSign were trading higher by 3.07% at $224.98. 

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