Threats related to data security, especially on personal finance software, continue to threaten the tax preparation market’s growth. However, the tax preparation market is still expected to grow exponentially in the upcoming months owing to an increasing number of businesses being conducted online. Moreover, the easing concerns about the severity of the omicron coronavirus variant lead to a rise in employment, benefiting the tax preparation industry. So, both Intuit Inc. (INTU) and H&R Block, Inc. (HRB) should benefit.
INTU provides financial management and compliance products and services for consumers, small businesses, self-employed, and accounting professionals worldwide. The company operates in four segments: Small Business & Self-Employed; consumers; credit karma; and ProConnect. HRB provides assisted income tax return preparation and do-it-yourself tax return preparation services and products to the general public, primarily in the United States, Canada, and Australia. In addition, the company offers Refund Transfers and H&R Block Emerald Prepaid Mastercard, which enables clients to receive their tax refunds.
INTU has gained 17% over the past year, while HRB has gained 20%. Which of these two stocks is a better buy now?
On November 1, 2021, INTU announced the completion of its acquisition of Mailchimp, a global customer engagement and marketing platform for growing small and mid-market businesses. Sasan Goodarzi, CEO of INTU, said, “We’ll expand our AI-driven expert platform by integrating Mailchimp and QuickBooks in smart ways that will help businesses from start-up to scale-up grow and run with confidence.”
On February 2, 2022, Jeff Jones, HRB’s president and CEO, said, “We set an aggressive goal to bring Spruce to market in a short amount of time, and I am very pleased that we were able to deliver such a robust product out of the gate. We are continuing to execute across the business, and we feel well-positioned for tax season.”
Recent financial results
INTU’s revenue increased 52% year-over-year to $2.01 billion for the fiscal first quarter ended October 31, 2021. The company’s non-GAAP net income came in at $423 million, representing a 69.2% year-over-year increase. So, its non-GAAP EPS came in at $1.53, up 63% year-over-year.
HRB’s net revenue increased 12% year-over-year to $158.82 million for the fiscal second quarter ended December 31, 2021. The company’s adjusted net loss came in at $176.70 million, representing a 24.9% year-over-year decrease. So, its adjusted loss per share came in at $1.02, down 20.3% year-over-year.
Past and Expected Financial Performance
INTU’s revenue grew at a CAGR of 18.9% over the past three years. Analysts expect INTU’s revenue to increase 27.4% in fiscal 2022 and 15.4% in fiscal 2023. The company’s EPS is expected to grow 20.1% in fiscal 2022 and 19.4% in fiscal 2023. Moreover, its EPS is expected to grow at a rate of 17.4 % per annum over the next five years.
On the other hand, HRB’s revenue grew at a CAGR of 2.6% over the past three years. The company’s revenue is expected to increase 608.8% in fiscal 2022 and 2.6% in fiscal 2023. Its EPS is expected to decline 26.3% in fiscal 2022 but grow 7.2% in fiscal 2023. Also, HRB’s EPS is expected to grow at a rate of 10% per annum over the next five years.
INTU’s trailing-12-month revenue is 3.98 times what HRB generates. INTU is also more profitable with a gross profit margin and net income margin of 82.69% and 20.28%, compared to HRB’s 46.99% and 19.83%, respectively.
Furthermore, INTU’s ROTC of 15.64% is higher than HRB’s 15.07%.
In terms of trailing-12-month non-GAAP P/E, INTU is currently trading at 41.37x, 393.1% higher than HRB’s 8.39x. Moreover, INTU’s trailing-12-month EV/EBITDA ratio of 29.24x is 258.3% higher than HRB’s 8.16x.
So, HRB is relatively affordable here.
INTU has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. On the other hand, HRB has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
INTU has a B grade for Growth and Sentiment, consistent with analysts’ expectations that its EPS will increase significantly in the upcoming months. On the other hand, HRB has an F grade for Growth and a D for Sentiment, consistent with analysts’ expectations that its EPS will decline in the near term.
Moreover, INTU has an A grade for Quality. This is justified given INTU’s 0.84% trailing-12-month asset turnover ratio, 30.8% higher than the industry average of 0.64%. On the other hand, HRB has a quality grade of C, in sync with its 0.78% trailing-12-month asset turnover ratio, 25.3% lower than the industry average of 1.04%.
Of the 164 stocks in the Software—Application industry, INTU is ranked #23. However, HRB is ranked #36 out of 52 stocks in the Consumer Financial Services industry.
Beyond what I’ve stated above, we have also rated stocks for Stability, Momentum, and Value. Click here to view all the INTU ratings. So, get all the HRB ratings here.
Rapid digital transformations are expected to drive the tax preparation market’s growth. So, both INTU and HRB are expected to benefit. However, it is better to bet on INTU because of its superior financials and profitability.
Our research shows that odds of success increase when one invests in stocks with an overall rating of Strong Buy or Buy. View all the other top-rated stocks in the Software – Application industry here. So, click here to access all the top-rated stocks in the consumer financial services industry.
INTU shares were unchanged in after-hours trading Wednesday. Year-to-date, INTU has declined -27.31%, versus a -11.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal’s fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More…