Intuit: Quality GARP

Intuit is very close to a monopoly. The quality of the business is extremely high, with lots of pricing power. We have written about it twice – once in late 2017, once in 2018 when Turbo Tax live was launched.

• Why are we writing on Intuit now? Because we see it as a compounder, with very little downside from current levels unless you have a very, very negative view on the macro.

• Lots of growth companies are going through an investment stage to keep up the growth rate. We would argue that this is a challenging environment to keep up that strategy / retain high growth rates.

• INTU does not need to go through any investment stage and we have high confidence in INTU's ability to maintain a 15% revenue growth over the next few years.

• We make the case that 15% growth is sustainable, and will be leveraged to the bottom line, hence >15% EPS growth.

The main question we kept coming back to is ‘what is the downside?’ / How do we lose money in INTU over a 3 year timeframe?

• Our opinion is that we will not. We think it is much more likely to make a 10-12% IRR.

• Intuit is a highly predictable business with GM 85% and operating margins of 36%, an ROE of ~20%, FCF Yield of ~4.5% and an EPS CAGR of 15% over the last decade.

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