The One Thing That Can Derail Intuit Stock Post Earnings

Intuit (NASDAQ:INTU) will report earnings after the market closes on August 25. And after a quarter in which the company delivered the performance normally expected during tax season, INTU stock is expected to settle into its more moderate results. The consensus estimate is that the company will deliver earnings per share (EPS) of $1.11 on revenue of $1.55 billion.

Analysts are generally bullish on INTU stock. The consensus 12-month price target suggests that the stock is overpriced. However, recent analyst coverage is giving the stock a more bullish outlook. It will need one because the company doesn’t pay a significant dividend to attract value investors.

So with Intuit looking like an earnings winner, is the stock a buy?

Late tax filers will provide a catalyst

While many taxpayers filed their taxes on or prior to April 15, many took advantage of the extended deadline. That should actually be a source of revenue for Intuit in the current quarter. However, tax preparation through the company’s TurboTax software is predictable and relatively unchanged.

Intuit faces competition, most notably H&R Block (NYSE:HRB), but this is largely a commodity business. Most people have a certain inertia when it comes to these programs. Once they’re familiar with one, they really have no motivation to switch other than perhaps price.

Artificial intelligence is the new dot-com

One of the things that Intuit is leveraging as a distinctive difference is its use of artificial intelligence (AI). I’m not going to be cynical. The company is delivering AI tools to make its products easier, and more (wait for it) intuitive.

But artificial intelligence is a little like the companies that put a dot-com at the end of their name in the early 2000s. Yes technology stocks have been leading the way in 2020. But the benefit for customers of Intuit is that the company is continuing to make their products easy to use. It really doesn’t matter to the user how Intuit does it. And so while I’m not knocking the company for touting their use of artificial intelligence, as an investor I wouldn’t put that much stock into it.

However, INTU stock did get a small boost on the announcement that it would be letting go of 7% of its staff due to its AI initiatives.

There’s an election in a few months

I know that’s a not a surprise to anyone, but it’s also kind of a big deal in terms of taxes. No matter what other issues are taking center stage at the moment, taxes always come into focus as the election draws closer. I’m not going to pretend that either party is an honest broker when it comes to taxes, but it’s significant for Intuit because there may be changes to the tax code.

And one of the services that Intuit is providing is an advisory service to help customers use their products. This is a service that is likely to be in high demand depending on the outcome of the election.

The one thing that could derail Intuit

It’s the novel coronavirus. And maybe the better way to make the argument is not about a second wave, but rather to look at the damage that’s already been done. Intuit’s customer base relies significantly on small- and medium-sized businesses. These have been the businesses that have affected the most by the lockdown measures.

For many of these businesses, it’s no longer about any efficiency they can get from QuickBooks. They simply couldn’t generate enough revenue to remain in business. And the fact is there may be more closures to come. When one of the candidates for president has stated he would shut down the economy again if “science” told him to, that’s a cause for concern.

And did I mention there was an election? In addition to the tax ramifications associated with a new administration, there would be a different climate for entrepreneurs.

Is Intuit a buy?

I’m saying that it’s not. I think there’s too much uncertainty about the economy, the virus, and the election. And those uncertainties outweigh the predictable revenue and technological efficiencies that Intuit is generating. And when I see INTU stock is priced at over 65x earnings, it starts to tell me that it’s a little overbought.

Death and taxes are certainties, but the certainty that comes from the company’s tax business isn’t enough to overcome some significant headwinds. Expect a positive earnings report. However as 2020 is teaching us, not all growth stocks go up after earnings. You can pass on Intuit.