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Is a Beat in the Cards for Intuit (INTU) in Q3 Earnings?

Intuit Inc. INTU is set to report third-quarter fiscal 2018 results on May 22. In the last reported quarter, the company delivered a positive earnings surprise of 2.9%.

The company’s results surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average positive earnings surprise of 37.2%. QuickBooks Online ecosystem and TurboTax are likely to aid the to-be-reported quarter’s top-line performance. However, high costs and expenses remain a major concern.

What the Zacks Model Unveils?

Our proven model shows that Intuit is likely to beat on earnings this quarter as it possesses two key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Intuit carries a Zacks Rank of 3 and has an Earnings ESP of +1.24%.

Analysts polled by Zacks project revenues of roughly $2.84 billion, up 11.9% year over year and earnings are projected at $4.67 per share, up 19.7% on year over year basis.

Factors at Play

The company has two main products — QuickBooks which offer financial and business management online services and desktop software to small businesses, and TurboTax which offers income tax preparation products and services. Notably, the company has been witnessing solid year-over-year growth for the last several quarters in its QuickBooks subscriber base which is driving Small Business segment revenues.

It should be noted that about 29 million small businesses in the United States depend on third-party companies to deal with their financial and accounting related preparation. With its enriched product portfolio, Intuit will have capitalized on this opportunity which we believe will be well reflected in third-quarter results.

For the fiscal 2018, the company expects QuickBooks online subscriber base to be in the range of 3.27-3.37 million. Per the Zacks Consensus Estimate, the company will end the fiscal third quarter with a subscriber base of 3.144 million, marking year-over-year improvement of 41.6%.

The year-over-year increase in the online subscriber base will continue to drive revenues going forward. The innovative features being launched by the company will also aid the top line.

Going ahead, we expect the company’s Consumer Tax segment revenues to continue to benefit from strong adoption of its Turbo Tax products.

The company’s continued focus on bringing in innovative and easy-to-use TurboTax products for different users has helped it add new customers. The analysts covering the stock expect the momentum to continue in the to-be-reported quarter as well, consequently bolstering the overall top-line performance. Furthermore, the company’s TurboTax products derive high margins which are likely to cushion its bottom-line results.

Nonetheless, Intuit’s high costs and expenses remain a major concern. During the fourth-quarter fiscal 2017 quarterly earnings conference call, the company had hinted that it would increase investments in engineering and marketing to seize the growing opportunity globally. Notably, Intuit’s second-quarter fiscal 2018 non-GAAP operating margin contracted 10 basis points year over year. This makes us slightly cautious about the to-be-reported quarter’s bottom-line results.

Intuit Inc. Price and EPS Surprise

Intuit Inc. Price and EPS Surprise | Intuit Inc. Quote

Other Stocks with Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

NetApp, Inc. NTAP has an Earnings ESP of +1.00% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

DXC Technology Company. DXC has an Earnings ESP of +0.53% and a Zacks Rank #2.

Nutanix Inc. NTNX has an Earnings ESP of +2.98% and a Zacks Ranks #3.

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