Intuit downgraded to Neutral at JPMorgan on multiple contractions
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Intuit (NASDAQ:INTU) stock gained as much as 1.5% in Monday morning trading even after JPMorgan downgraded the stock to Neutral from Not Rated as earnings growth is expected to be offset by price-to-earnings and free-cash-flow multiple contractions. The rating was Overweight prior to the NR.
"We do not think 10-15% organic growth will continue to carry a mid-20s-plus PE & FCF multiple in a rising-rate / recessionary environment, JPM wrote in a note to clients, adding that FCF multiples for Adobe (ADBE) and Saleforce (CRM) have already dipped to sub-20x. Intuit's (INTU) overall Valuation is marked with an "F" rating. 
Furthermore, JPM pointed to a number of mitigating factors such as prospects for a deceleration in Intuit's (INTU) Credit Klarna business, as credit access tightens in the face of a rising interest rate environment. 
Shares of INTU dropped over 38% year-to-date, but that didn't stop the average Wall Street analyst from calling it a Buy. The Quant system, though, screened the stock as a Hold. 
JPM, meanwhile, noted some positive drivers, including: "1) recent price increases of 40-50% for QuickBooks Desktop and 10-15% for QuickBooks Online boosting near-term visibility; 2) very low exposure to FX / European macro slowdown; 3) 80% subscription revenue mix, up materially vs. prior recessions; 4) likelihood of stability in the Tax business irrespective of macro cycle."
Previously, (Sep. 29) Intuit reaffirms outlook at Investor Day.