Intuit Is A Small Business Growth Story In An Expanding Market

Shares of Intuit Inc. (NASDAQ: INTU) gained more than 6 percent Wednesday and hit a new 52-week high of $140.25 in reaction to the company's earnings report.

Some analysts are taking the report to reinforce a bullish stance, including Bank of America's Kash Rangan who maintained a Buy rating with a price target raised from $130 to $145.

According to Rangan, Intuit's "strong" fiscal third-quarter earnings report consisted of beats across many metrics, including revenue, earnings per share, subscriber growth. Moreover, the company's fiscal fourth-quarter sales guidance came in ahead of expectations and also guided its full year Quickbook subscriber base 100,000 higher than its prior guide to 2.3 million.

See Also: Intuit's Q3 Proves The Company Can Continue Positive Growth, Says Credit Suisse

Perhaps more important, Rangan noted that Intuit's small business online ecosystem realized its third consecutive quarter of accelerating growth. Specifically, the segment grew at 30 percent on a year-over-year basis, which was three times faster than the consumer tax ecosystem.

Intuit also suffered a "weak" tax season, but this was offset by stronger than expected average revenue per user (ARPU) and supports a continued 6 to 8 percent growth in fiscal 2018 if the company gains shares.

Small Business Growth Story

Rangan also argued Intuit is rapidly evolving into a secular small business growth story versus a low growth but steady tax story. In fact, the company is "well on its way" to grow its base of small business which grew 12 percent year-over-year, which also marks the fifth quarter of expansion.

The analyst argued that even though the small business segment operates at margins below the tax unit (40 percent versus 60 percent), there is still potential for margin growth as the business scales. In addition, should ARPU for the small business segment decline slightly the segment can still grow at a rate of at least twice as fast than other units including tax.