Constant Contact Inc (CTCT), Intuit Inc. (INTU): How Thinking Small Makes You Big Profits

Its consumer tax segment has been the headache for analysts and investors causing the company to guide lower at its latest earnings release. However, its Financial Solutions and Management Solutions small business division is the growth driver at Intuit Inc. (NASDAQ:INTU).

Its most direct competitor is Paychex, Inc. (NASDAQ:PAYX). Paychex has more mid-size reach but Intuit offers small businesses more economical solutions and will likely continue to gain share.

This spring Intuit Inc. (NASDAQ:INTU) partnered up with LinkedIn Corp (NYSE:LNKD) to help small business with hiring. Both offered discounts on software and hiring packages. This was a match made in heaven, with LinkedIn as the largest professional social network and Intuit as a leading business and tax software provider.

In a seeming effort to catch up with Intuit, on June 12 Paychex bought HRServices, a software as a service company specializing in social recruitment, tracking and hiring software. Its main product is myStaffing Pro. Paychex paid an undisclosed sum.

Among seven strategic acquisitions in the last few years, Intuit Inc. (NASDAQ:INTU) bought Medfusion to woo small business owners with simple low cost solutions to health care management with a tax free debit card, payroll management, and banking services. In 2010 when they bought it with Obamacare looming this couldn’t have been more prescient.

National Federation of Independent Business’ chief economist William Dunkelberg sees the biggest headwind for small business to be,”… theACA (Affordable Care Act) is about to grip the entire business community in a morass of new taxes, forms to fill out, fines and higher labor costs,” (his emphasis).

Paychex is also offering various services to help employers with the ACA much as Intuit has like their Paychex Benefit Account using a single debit card and Employer Shared Responsibility Service which helps business determine if they are fulfilling ACA regulations.

Intuit Inc. (NASDAQ:INTU) also competes with eBay Inc (NASDAQ:EBAY), Google Inc (NASDAQ:GOOG) and square in the mobile wallet space. A most promising asset is Intuit’s GoPayment, an application for small business mobile payment. Small businesses already in the Intuit ecosystem will likely adopt GoPayment as it syncs with QuickBooks and QuickBooks Point Of Sale. With over 2.8 million small retailers in the US this could be very big for Intuit.

Intuit’s CEO Brad Smith was named a Motley Fool CEO of the week last December. It has the lowest corporate governance risk rating of 1 and offers a 1.20% yield at a forward P/E of 16.01 and PEG of 1.35.

Paychex may seem the better buy with its 3.60% yield. It should be noted the payout ratio exceeds 90% and has been a concern since 2010 when the payout ratio first rose above 75%. Compare this to the payout ratio at Intuit at 29%. Paychex has a higher PEG at 2.56 and higher forward P/E at 21.85.


PAYX Dividend Yield data by YCharts

Open for small business

While all three companies are doing their best for small business I like Paychex the least despite its high yield. The fundamentals are better at Intuit Inc. (NASDAQ:INTU). Don’t forget Intuit’s admirable CEO, mobile wallet, and prescient acquisitions as well as its partnership with LinkedIn.

Constant Contact is a good speculative play on small business marketing. Between Constant Contact and Intuit a small business should be good to go.

AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends Intuit and Paychex. The Motley Fool owns shares of Intuit.

The article How Thinking Small Makes You Big Profits originally appeared on Fool.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.