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Bear of the Day: Intuit (INTU)

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Intuit (INTU - Free Report) is a Zacks Rank #5 (Strong Sell) that is a business and financial software company. Intuit develops and sells financial, accounting and tax preparation software for both small businesses and individuals. Some popular Intuit products include QuickBooks, Mint and Turbo Tax.

The stock has had a good year, but investors might want to get cautious after analysts have started to lower estimates.

About the Company

Intuit employs over 10,000, was founded in 1983 and is headquartered in Mountain View, CA. The company has locations in the US, UK, Singapore, Canada, India, Australia and more.

Intuit is valued at $100 billion and pays a dividend of 0.62%. The stock has Zacks Style Scores of “A” in Growth, but “D” in both Value and Momentum.

Stock Run and Q2 Earnings

The stock has been on a 45-degree angle upwards ever since 2017, up over 300% since the begging of that year. In 2020, the stock has added another 43% to date. The fuel behind the move has been a stretch of earnings beats that started the breakout.

The company hasn’t missed during this run higher. Last quarter, the company reported a 147% EPS surprised to the upside, which recently brought the stock to all-time highs. The run has been great, but investors might have reason to worry going forward as the valuation is getting lofty into a guidance that disappointed.

Guidance and Estimates  

Early in December, the company guided FY21 EPS below expectations, seeing $8.20-8.40 vs the $8.54 expected. This guide includes the recent Credit Karma acquisition and investors didn’t seem to be phased by the lower numbers.

The guide forced analyst to take estimates down. While the current quarter looks fine, next quarter has seen estimates fall 11%. Over the last month, estimates went from $6.71 to $5.97, and for the current year they have dropped from $8.48 to $8.68

The question for investors is can this short-term hiccup derail the amazing run the stock has had.

Technical Take

It has been a great run, but the stock looks overextended. If the 21-day MA were to break the 50-day at $350 would likely offer some support. However, if that level fails the next stop is all the way down at $304, where the 200-day MA resides. The stock hasn’t seen this level since May and would be a better entry than current prices.

In Summary

This is not a stock I would look to short, but buying at current levels seems to have a high-risk, low reward scenario. Investors should be patient and wait for a better entry to jump into Intuits long-term growth story.

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