Software Stocks

Intuit Inc. Quarterly Valuation – January 2015 $INTU

500px-Intuit_Logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – December 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Intuit Inc. (INTU) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Intuit Inc. (Intuit) is a provider of business and financial management solutions for small businesses, consumers, accounting professionals and financial institutions. The Company organizes its portfolio of businesses into four principal categories: Small Business Group, Tax, Financial Services and Other Businesses. Small Business Group include seven segments: financial management solutions, employee management solutions, payment solutions, consumer tax, accounting professionals, financial services and other businesses. Tax include two segment: Consumer Tax and Accounting Professionals. Financial Services: This segment consists of digital (online and mobile) banking solutions and Other Businesse segment includes its global businesses. In June 2014, Intuit Inc completed the acquisition of Check, Palo Alto. Effective August 13, 2014, Intuit Inc acquired Itrios LLC. Effective September 01, 2014, Intuit Inc acquired Invitco.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $89.36
MG Value $71.78
MG Opinion Overvalued
Value Based on 3% Growth $39.07
Value Based on 0% Growth $22.90
Market Implied Growth Rate 12.33%
Net Current Asset Value (NCAV) $1.14
PEmg 33.16
Current Ratio 1.79
PB Ratio 8.73

Balance Sheet – September 2014

Current Assets $2,437,000,000
Current Liabilities $1,360,000,000
Total Debt $499,000,000
Total Assets $5,038,000,000
Intangible Assets $1,825,000,000
Total Liabilities $2,111,000,000
Outstanding Shares 286,000,000

Earnings Per Share

2015 (estimate) $2.45
2014 $3.12
2013 $2.83
2012 $2.60
2011 $2.00
2010 $1.77
2009 $1.35
2008 $1.41
2007 $1.24
2006 $1.16
2005 $1.01

Earnings Per Share – ModernGraham

2015 (estimate) $2.69
2014 $2.70
2013 $2.36
2012 $2.03
2011 $1.68
2010 $1.47

Dividend History

Conclusion:

Intuit Inc. is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, short dividend history and the high PEmg and PB ratios.  The Enterprising Investor has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.68 in 2011 to an estimated $2.69 for 2015.  This level of demonstrated growth does not support the market’s implied estimate of 12.33% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

Be sure to check out previous ModernGraham valuations of Intuit Inc. (INTU) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Intuit Inc. (INTU)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Intuit Inc. (INTU) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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