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Intuit (INTU) Downgraded to Strong Sell: Should You Dump?

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On Jan 5, 2017, Zacks Investment Research downgraded Intuit Inc. (INTU - Free Report) to a Zacks Rank #5 (Strong Sell). Going by the Zacks model, companies holding a Zacks Rank #5 are likely to underperform the broader market.

Why the Downgrade?

Intuit’s share price movement has not been much impressive. Over the last six months, its shares have gained just 1.3% compared with 11.9% increase recorded by the Zacks categorized Computer-Software industry.



This was possibly due to the company’s lower-than-expected revenue guidance for second quarter and fiscal 2017. The company anticipates revenues of $5 billion to $5.1 billion (mid-point $5.05 billion) in fiscal 2017. The Zacks Consensus Estimate is pegged at $5.060 billion, which is slightly higher than the company’s mid-point.

For the second quarter, the company anticipates revenues in a range of $1.045 billion to $1.065 billion (mid-point $1.055). The Zacks Consensus Estimate is pegged $1.057 billion, which is slightly higher than the company’s mid-point.

Also, analysts have become increasingly bearish on the stock over the past couple of months with estimates moving downward. With all estimates moving down and no upward revision in the past 60 days, the Zacks Consensus Estimate for fiscal 2017 earnings declined from $3.55 to $3.41 per share. Also, for the next quarter, the Zacks Consensus Estimate declined from $3.69 to $3.52 per share over the same time frame.

What adds to the woes is the fact that the stock carries a VGM Score of “D.” We note a weak Style Score robs the stock of much of its upside potential over the next 30 days. So if a stock you’re in slips to Style Score of D or F, it’s better to sell that stock and switch to one with a score of A or B.

Furthermore, Intuit has also restructured its business to focus on the QuickBooks services. It expects to continue investing in this portfolio, which is likely to hurt its near-term profitability.

Moreover, rising competition from payroll solution providers such as Paycom Software Inc. (PAYC - Free Report) and Automatic Data Processing (ADP - Free Report) is a concern, especially considering the seasonality of Intuit’s tax business and the ongoing economic uncertainty.

Stocks to Consider

Not all technology stocks are performing as poorly as Intuit. We recommend NetApp Inc. (NTAP - Free Report) , which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here

NetApp has a long-term earnings per share growth rate of 11.2%.

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