Intuit Stock Ready to Soar: RBC Sees Big Upside with GenAI

Key Points

• RBC Capital recently initiated coverage on Intuit. Their $760 price target implies a 15% upside.
• RBC believes Intuit can use GenAI to drive down costs for its customers and increase customer loyalty.
• Investors are already seeing evidence of Intuit's GenAI platform, Intuit Assist, being adopted.

Intuit NASDAQ: INTU is seated in the technology sector and specializes in providing tax and small-business accounting software. RBC Capital recently initiated coverage on the company, setting a price target of $760, implying a 15% upside from the current price. Lead analyst Rishi Jaluria believes the firm can monetize GenAI across its products. Let's take some time to understand Intuit’s business and break down RBC's bullish argument.

Intuit’s Products and Market Dominance

Intuit has four main products: TurboTax, Credit Karma, QuickBooks, and MailChimp. TurboTax is a software and service for filing tax returns. Credit Karma provides access to credit scores and reports and helps track personal finances. QuickBooks is small business accounting software, and MailChimp is an email marketing platform for creating and tracking email campaigns.

Intuit operates as four reportable segments: Small Business & Self-Employed, Consumer, Credit Karma, and ProTax. The Small Business & Self-Employed segment sells QuickBooks and MailChimp, making up 56% of total revenue. TurboTax is in the Consumer segment, making up 29% of total revenue.

The company’s TurboTax platform managed 28% of IRS returns last year. The firm had a 70% market share amongst those who chose to file their returns without professional help. QuickBooks controls 81% of the small business accounting market share. This market is currently worth $20 billion and is expected to grow by 9.2% annually until 2029.

Breaking Down RBC’s Bull Case for Intuit

Intuit's powerful market shares are one reason Jaluria believes the firm can greatly benefit from implementing GenAI. These market shares give them access to massive amounts of data, which they can use to train algorithms and deliver more value to their customers.

Regarding TurboTax, Benjamin Franklin's phrase applies well: "Nothing is certain, except death and taxes." Everyone must file their taxes, but almost no one is a tax expert. This can cause people to have a lot of questions when filing. RBC believes Intuit has a big opportunity to harness and monetize GenAI here. AI will allow the company's in-house human tax experts to provide faster and better answers to individual tax situations. Customers can also get questions answered directly by Intuit's GenAI.

This should lower costs and provide more value to customers, which should, in turn, keep those customers and drive them to use Intuit's other products.

Intuit Assist: Transforming Financial Services with Artificial Intelligence

Intuit Assist is the firm's new financial assistant, which will use GenAI's power. The platform is being implemented across all of Intuit's products. The firm hopes to drive cost reduction and improved insights into taxes, personal finance, small business accounting, and marketing intelligence.

We already have some data on customers utilizing Intuit Assist. In the firm's earnings call last quarter, CEO Sasan Goodarzi said that more than 24 million customers used Intuit Assist to explain their refund last year. Nearly half of Credit Karma's 40 million active users now have access to GenAI capabilities.

With Credit Karma, customers can have a conversation with Intuit Assist. For example, they can ask specific questions to understand why one credit card is a better option for them than another. Goodarzi emphasized that if these features were not helping with monetization, the company would not have rolled them out to so many customers.

Strong Quarterly Growth for Intuit: Revenue and EPS Increase

The firm grew revenues solidly in the quarter, up 12% from the previous year, and adjusted earnings per share (EPS) was up 11%. Growth in the Small Business & Self-Employed segment of 18% is particularly encouraging. This is the firm's largest and most consistent segment. It also has the highest operating margin in every quarter other than tax season. The Consumer segment revenue and margins spike in that quarter. Analysts expect net income to increase by 16% annually over the next three years.

When it comes to valuation, the firm's forward P/E ratio sits at 36, in the 66th percentile of the U.S. technology sector. Many analysts are bullish on the shares, with 22 out of 31 rating the company as a Buy or Strong Buy. But, most are not as bullish as RBC, with the average price target only implying an upside of 6%.