Dark Clouds Continue To Gather For Intuit As Tax Season Remains Weak

Barclays said in a note Friday it sees dark clouds continuing to emerge on Intuit Inc. INTU's horizon, given the weak tax season, and believes investors need to be more focused.

Filings Decline Across The Board

Analyst Raimo Lenschow said he still sees declining numbers for all subgroups, including Intuit's self-prepared category. The industry had expected a late start to the tax season this year due to the calendar and new legislation pushing early tax filers into later weeks, the analyst added.

H&R Block Gains Back Ground

Notwithstanding this industry-wide malaise, Barclays noted that rival H & R Block Inc HRB had adopted with success, Intuit's strategy around Absolute Zero. The firm thinks H&R Block is making inroads.

Core Business Weak

While noting that investors are liking Intuit due to the strong results of its Quick Online business, the firm said the business accounts for only 15 of its revenues and notably lower profits. The firm clarified that Intuit derived roughly 42 percent of revenues and 52 percent of profits from its consumer tax business.

"If the category growth is in question, the negative EPS impact could be larger than the good news from the QuickBooks Online area. This means investors might have to 'rediscover' Intuits tax dependency," Barclays cautioned.

Now May Not Be Right Time To Build Position

Barclays sees Intuit's focus on domestic SMB and consumer customer as reasons for investor preferring Intuit, as it helps in steady earnings, enabling steady share price growth along with increasing earnings.

"However, at 22 times calendar year 2018 earnings per share estimate and risk to the main profit pool and earnings drivers, we believe now is may be not the right time to build a position," Barclays concluded.

Barclays maintains its Equal Weight rating and $129 price target for the shares of Intuit.

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