Intuit swings to loss in Q4, issues poor Q1 FY17 view

Tax preparation software provider Intuit Inc. (NASDAQ: INTU) reported a swing to a loss in the fiscal 2016 fourth-quarter, compared to the prior year’s similar period.

The market participants were not impressed even after the company’s earnings and revenue topped the analysts’ estimates. The reason is that the fiscal 2017 first-quarter earnings and revenue guidance were far below the Zacks estimates.

Thus, considering the unimpressive first-quarter outlook, we are bearish on the stock.

The Mountain View, California-based company reported fourth-quarter net loss of $40 million or $0.16 per share on revenue of $754 million. In the earlier fiscal year, Intuit recorded net profit of $14 million or $0.05 per share on revenue of $696 million.

Excluding the income tax expense and share based compensation expense, among others, the business and financial management solutions provider posted non-GAAP net income of $20 million or $0.08 per share, against non-GAAP net loss of $15 million or $0.05 per share in the fourth-quarter of 2015. The Q4 2016 earnings were higher than the Thomson Reuters’ estimates of a loss of $0.02 per share.

CNBC

The company also gave its guidance for the first-quarter of fiscal 2017. Intuit anticipates first-quarter revenue in the range of $740 million to $760 million, which reflects a growth of between 4% and 7% y-o- y. The company expects a GAAP loss in the range of $0.19 to $0.21 per share. Non-GAAP earnings are anticipated to be between $0.01 and $0.03 per share. Intuit also forecasted a subscriber base of 1.6 million for its online software platform QuickBooks. The first-quarter earnings and revenue guidance were a far cry from the analysts’ estimate of $0.13 per share on revenue of $773 million.

For fiscal 2017, the company expects revenue growth in the range of 7% to 9%, which reflects revenue in the range of $5 billion to $5.1 billion. The GAAP EPS is predicted to be in the range of $3.35 to $3.45 per share, down from $3.69 per share reported in the fiscal 2016. The non-GAAP EPS is expected to be between $4.30 and $4.40 per share, reflecting a growth of 14% to 16% compared to last year.

Considering the swing to loss and unimpressive first-quarter outlook, we have a bearish view on the stock.

The share price of Intuit has closed below the 50-day moving average, thereby indicating bearishness in the counter. The stochastic indicator is descending with a reading below 50. The next major support for the stock exists at 104.

Thus, taking a short position by purchasing a one touch put option contract is recommended in the current bearish scenario. The target price for the put option trade should be above $104. Similarly, to give adequate time for the price to decline and violate the target level, the contract should remain valid for a four week time period.