Morgan Stanley Downgrades Intuit Amid Pricing Concerns By Investing.com

Investing.com – Morgan Stanley analysts downgraded intuit Inc (NASDAQ: ) from “Overweight” to “Equal-weight” on Wednesday, citing concerns about the company’s aggressive pricing strategy.

Accompanying the downgrade is a revised price target, lowered from $750 to $685, reflecting growing fear about Intuit’s near-term growth prospects in key segments like TurboTax and QuickBooks.

Morgan Stanley analysts noted that Intuit’s reliance on significant price increases could contribute to the loss of market share, particularly in its TurboTax division. TurboTax has recently seen a decline in market share, which analysts attribute in part to the company’s increased prices, reflecting a saturation of the do-it-yourself market.

This share loss is a headwind as Intuit moves into higher-margin segments, including Tax Assisted and Business.

Additionally, analysts noted that expectations for small business growth, driven by significant price increases in QuickBooks, are high. That, combined with high margin expectations following recent headcount cuts, leaves Intuit with little room for error, making the risk/reward balance more precarious.

Despite these near-term challenges, Intuit has shown strong performance over the past four years, with its stock outperforming the median large-cap software stock by more than 50%.

This outperformance was driven by a shift in focus to higher value solutions and a transition to market, which contributed to a significant expansion of operating margins and EPS growth. However, recent volatility from acquisitions like Credit Karma and Mailchimp pose additional risks.

Key takeaways from Morgan Stanley

• TurboTax Market Share Losses: Intuit’s strategy of pushing price increases resulted in market share losses for TurboTax, particularly in the DIY segment. This decline can be attributed to the saturation of the DIY market and increased prices that exceed the willingness of customers to pay.
• QuickBooks Price Increases: While QuickBooks has seen sizeable price increases (16% on average), investor expectations for teenage growth leave little room for underperformance. The recent increases may lead to competitive pressures, especially as QuickBooks’ market leadership position faces new challenges.
• Balanced Risk/Reward: The company’s current pricing strategy increases the risk of execution deficiencies. Intuit’s premium valuation relative to its peers is less justified given the introduction of volatility from recent acquisitions and market share challenges.

With these concerns in mind, Morgan Stanley modified its valuation model, applying a PEG ratio of 2.1x, slightly below the historical PEG of 2.2x. This revision results in a price target adjustment from $750 to $685, reflecting a more conservative outlook on Intuit’s market position and growth sustainability.