Benjamin 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 10 Most Undervalued Companies for the Defensive Investor – November 2015. 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 stock analysis showing a specific look at how Intuit Inc (INTU) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Intuit Inc. is a provider of business and financial management solutions for small businesses, consumers and accounting professionals. The Company operates through three segments: Small Business, Consumer Tax and Professional Tax. The Company operates in the United States, Canada, India, the United Kingdom, Singapore and Australia, among others. The Company’s Small Business segment solutions include QuickBooks Online, Online Payroll solutions, Online Payments solutions and Intuit Developer Group. The Company’s Small Business Desktop Ecosystem solutions include QuickBooks, Desktop Payroll Solutions, Desktop Payments solutions, QuickBooks Technical Support and financial supplies. The Consumer Tax segment offers tax return preparation offerings, electronic filing and other services, and Intuit Tax Freedom Project. The Company’s professional tax offerings include Lacerte and ProSeries.
Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$24,713,450,045||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||0.76||Fail|
|3. Earnings Stability||Positive EPS for 10 years prior||Pass|
|4. Dividend Record||Dividend Payments for 10 years prior||Fail|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||96.25%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||34.41||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||23.74||Fail|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||0.76||Fail|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||-1.09||Fail|
|3. Earnings Stability||Positive EPS for 5 years prior||Pass|
|4. Dividend Record||Currently Pays Dividend||Pass|
|5. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||4.72%|
|MG Value based on 3% Growth||$38.66|
|MG Value based on 0% Growth||$22.66|
|Market Implied Growth Rate||12.95%|
|% of Intrinsic Value||191.81%|
Intuit Inc does not qualify for either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, short dividend history, and the high PEmg and PB ratios. The Enterprising Investor is concerned by the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.
As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.03 in 2012 to an estimated $2.67 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 12.95% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.
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.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$4.98|
|Number of Consecutive Years of Dividend Growth||2|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||Oct15|
|Total Current Assets||$1,427,000,000|
|Total Current Liabilities||$1,887,000,000|
|Shares Outstanding (Diluted Average)||272,000,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$3.45|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$2.67|
Other ModernGraham posts about the company
|Intuit Inc. Analysis – October 2015 Update $INTU|
|Intuit Inc. Analysis – July 2015 Update $INTU|
|Intuit Inc. Quarterly Valuation – April 2015 $INTU|
|58 Companies in the Spotlight This Week – 1/31/15|
|Intuit Inc. Quarterly Valuation – January 2015 $INTU|
Other ModernGraham posts about related companies
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. See my current holdings here. This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions. ModernGraham is not affiliated with the company in any manner. Please be sure to review our detailed disclaimer.