By Jacob Sonenshine

The tax deadline is approaching. While that may be terrifying for taxpayers, it could be good news for shares of Intuit, the parent company of TurboTax.

Intuit has had a tough time lately. Shares are down 18% from their November record close of $706, caught up in the software-stock selloff that started around the same time. It's also been a long-term underperformer, lagging behind the S&P 500 index by half a percentage point annually over the past three years, and the iShares Expanded Tech-Software Sector exchange-traded fund by almost three points. Even tax season doesn't usually give the stock that much of a boost: It has averaged a loss of 3.4% in the month leading up to April 15, while rising 1.5% after, a gain in line with the S&P 500's.

Now it's time to buy. The recent selloff has made the stock look attractive amid signs that its business is set to accelerate. Intuit's recent earnings report was good enough to trigger a large jump in the stock, and the third quarter is shaping up to be particularly strong, as TurboTax's business stabilizes with lower-end consumers and the product makes inroads with taxpayers who have more complicated returns. It all points to the possibility of big gains in the months ahead.

"We see a risk-reward dynamic that is skewing toward the positive, largely driven by recent share underperformance," wrote J.P. Morgan analyst Mark Murphy on March 5, when he upgraded the stock to Overweight. He has a $660 price target, up 15% from a recent $574.

Intuit's fiscal third quarter, which ends in April, is a biggie -- literally. That's when the company receives the vast majority of its annual consumer segment sales from TurboTax filers. Analysts expect the company to generate $4 billion in consumer revenue in the quarter, or 83% of the $4.8 billion total, according to FactSet.

That $4 billion in revenue would represent 8% year-over-year growth, up from 3% during the same period last year, driven more by customers with complex tax needs -- who will pay more for the service -- rather than do-it-yourselfers. CEO Sasan Goodarzi said on February's second-quarter earnings call that the company has seen traction with both groups. That should boost growth as the software sells at higher prices on average, given that the fee for complex filings is higher, while the company maintains its lower-end base.

External data back Goodarzi up. Mizuho analyst Siti Panigrahi's data show the year-over-year growth of total tax returns countrywide improved by a percentage point for the final week of February, versus the prior week, with growth for DIY remaining stable. Panigrahi expects growth for complex filing in April, and notes that pricing trends have improved. "We remain encouraged by the catch-up [from complex filers] we've seen over the last several weeks and the opportunity for INTU to benefit from a higher mix of late season (higher) average selling prices," he writes.

The rest of the business is growing rapidly. Analysts forecast total sales growth of 13% this year, driven by the Global Business Solutions segment -- which provides bookkeeping, fee-collecting, and marketing software to businesses and is expected to see $11.06 billion in revenue and 16% growth. Some of that will come from higher average revenue per customer, as Intuit's early push into selling to midsize companies brings average subscription prices higher. (It's been focused on small businesses over the years.) Intuit's artificial-intelligence offerings should also provide a boost as they're incorporated into more products. For example, they could help customers identify opportunities for marketing and distribution initiatives using MailChimp.

The result: high profit growth. Earnings per share can grow 14% to $19.38, given that the company usually repurchases some shares. Beyond this year, analysts expect the growth of operating spend to moderate, helping margins expand, which could boost profits even more. These results -- especially if April-quarter forecasts pan out -- should drive the stock higher. It trades at 28 times 12-month earnings expectations, down from 35 times at the stock's peak. It's also below the software ETF's 31.6 times, down from a five-year in-line average.

"INTU has de-rated to a point where we believe a solid tax season and steady QBO results have the potential to create enough of a 're-rate' so that the risk/reward continues to skew positive from current levels," writes Evercore analyst Kirk Materne.

Yes, taxes stink. Intuit stock gives investors a way to profit from them.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

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March 13, 2025 12:04 ET (16:04 GMT)

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