NEW YORK (CNN/Money) -
This should be the best of times for Intuit. With less than four weeks until April 15, the current quarter usually means big business for the company, which makes the popular TurboTax and QuickBooks software.
But the stock got walloped Friday after warning that results for its fiscal third quarter, which ends in April, as well as its fourth quarter, ending in July, will be lower than Wall Street's expectations. Intuit (INTU: down $12.17 to $38.72, Research, Estimates) shares finished nearly 24 percent lower on Friday.
As a result, Intuit has given up all of its gains since reporting a bullish quarter and giving upbeat guidance last month. (For more about Intuit, read Beating Bill Gates.)
Still growing
Before the warning, analysts were expecting Intuit to report earnings of $1.08 a share on sales of $693 million for its third quarter, according to First Call. Intuit's new guidance is for earnings between $1 and $1.03 a share and revenue of $630 million to $660 million. The company posted earnings of 75 cents a share on sales of $545 million a year ago.
For the full year (ending in July), Intuit is expected to report revenue of $1.65 billion to $1.69 billion, compared with $1.36 billion a year ago. Analysts were expecting sales of $1.7 billion. And earnings per share are now expected to come in between $1.30 and $1.35, up from $1.14 last year. Analysts were predicting earnings per share of $1.39.
So is the drubbing that Inuit took an overreaction? Probably not. Even though the company is positioned well for the long-term and remains the leader in personal finance software, the stock might have gotten ahead itself.
Intuit was trading at about 30 times estimated earnings when it reported earnings last month and reaffirmed full-year guidance. But even though earnings estimates did not increase during the past month, the stock ran up 22 percent through Thursday, March 20. As such, the stock was trading at 37 times estimated earnings.
Earlier estimates too frothy
Management blamed the weak economy for the warning, not increased competition. "Our share of retail sales for QuickBooks and TurboTax has remained steady and strong, but the categories are simply growing more slowly," CEO Steve Bennett said in a written statement. "We're disappointed to see a sluggish economy worsening in the past few weeks with a further decrease in customer spending in all our categories."
Analysts agreed, saying that, if anything, Intuit raised the bar too high in the face of a sluggish economy. Cameron Steele, an analyst with RBC Capital Markets, wrote in a report following the warning that "frothy growth assumptions finally caught up with Intuit." Steele does not own the stock and his firm has no investment banking relationship with the company.
Jefferies analyst Craig Peckham wrote that Intuit might now be too conservative with its new estimates. Sales could increase in the next few weeks as procrastinators finally get cracking on their income tax returns.
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"The chances of an upside surprise to new estimates is reasonable given the increasingly back-end loaded nature of revenues," wrote Peckham. "Intuit does not appear to be giving itself much credit for a possible late-quarter revenue pickup in the new guidance." He does not own shares of Intuit and Jefferies does not do investment banking for the company.
Following Friday's drubbing, Intuit's stock was once again trading at about 30 times earnings estimates for fiscal 2003 (using the mid-range of the company's new guidance). And that's a discount to its historical valuation, Peckham noted.
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