Intuit Inc. (INTU): Great Cash Flow, Mid Teens Growth, What More Do You Want?

Despite the mini fall in the markets recently I’m still finding it hard to find stocks with the golden combination of free cash flow yields in excess of 5% and reliable mid teens earnings prospects. The good news is that one of my long term holdings Intuit Inc. (NASDAQ:INTU) is offering those metrics and more. In summary, I like the recent results. The company confirmed the full year guidance so the upcoming tax season looks okay, and its small business group solutions continue to grow in the mid teens. It’s not too late to pick some up.

Intuit Deserves a Re-rating

I think so and not only because of the favorable employment picture dropping into the bottom line of its DIY consumer tax offerings. The other big stories are the gradual acceleration in its small business group solutions (Employee Management, Financial Management and Payment Solutions) and its opportunity to grow margins with the shift to Software as a Service (SaaS) based revenues. I know the company well, and there is a useful primer post on the company linked here from which readers can get more background information.

Going back to the current results I want to demonstrate how they signal continued diversification by breaking down 2012 operating income here. The small business group solutions are broken out in the second circle. The group made up 35% of revenues in 2012, and this will increase in 2013.

The point is that Intuit is diversifying its earnings away from the cyclicality of Consumer Tax. Moreover, the small business group is consistently growing revenues at a strong clip.

Furthermore, the shift towards online based solutions continues apace. To give an idea of what can be expected, Intuit explained that the tax software five year CAGR was 7% as compared to tax stores being down 1% and pro’s being up 1%. In that time period Intuit has trounced H&R Block, Inc. (NYSE:HRB) both as a company and as an investment. Within its US Federal TurboTax business, Intuit reported 72% share from web based units and only 23% from desktop. This changed from 69% and 25% respectively in 2011. So it is all about the web for TurboTax.

Similarly, it is managing a shift in its Financial Management Solutions (Quickbooks) towards a subscription based model and away from desktop units. Online subscribers increased 28%, and desktop subscribers were up 25% too with desktop units down 18%.