You Might Want To Value Intuit Differently, Says Barclays

• Intuit Inc. INTU shares have lost 7 percent year-to-date, having plummeted 18 percent since August 10.
• Barclays’ Raimo Lenschow upgraded the rating for the company from Equal Weight to Overweight, while raising the price target from $102 to $105.
• Intuit’s cloud transition is tracking differently from investor expectations, Lenschow said, adding that the analysis indicates a favorable risk/reward and implies an upside of about 21 percent.

Analyst Raimo Lenschow mentioned that the progress of Intuit’s cloud transition has been different from what investors had anticipated. While several new customers are being attracted, there have been fewer conversions from existing desktop users.

“This different scenario can be well captured in a Sum of the Parts (SOTP) valuation, with stable Tax and Desktop “cash cow” businesses valued separately from the fast growing subscription offering in the Online business. Our analysis suggests a favorable risk/reward and implies upside to $105 (~21%),” Lenschow wrote.

Subscriber growth for the new Quickbooks Online product has been very strong. The product exhibits clear potential of expansion into the lower end of the market and internationally. Lenschow added, however, that ARPU is “lagging” largely on account of “first year promotions and customer mix (low-end and international).”

Barclays noted, “…with increasing customer cohort maturity we expect ARPU to improve due to a lessening impact from promotions and higher payroll/payment attach rates (which Intuit will likely discuss at the analyst day next week). This should drive revenue growth.”

Desktop migrations so far have been disappointing. Lenschow commented that Intuit’s shares appear “undervalued,” even in the absence of aggressive desktop migrations.