Intuit Might Get a Windfall From the President's Tax Bill

President Bush's proposed $1.6 trillion income-tax cut could bring a windfall to more than just taxpayers next year. Intuit (INTU Quote - Cramer on INTU - Stock Picks), maker of popular software programs including Quicken and TurboTax, may pull in some extra cash as well.

Congress begins an approval process that will take weeks when the first part of the tax bill comes before the House of Representatives Thursday.

For Intuit, which has more than 80% of the tax-preparation-software market, public attention focused on a tax cut could mean an easier time selling its annual-tax software next year. Each year, four of five TurboTax users upgrade to the latest version, which includes annual-tax regulation changes, according to Bob Meighan, an Intuit vice president.

And the promise of larger refunds could entice taxpayers to start planning earlier than usual. Intuit sold 5 million desktop TurboTax units in 2000, and 1.4 million taxpayers used TurboTax for the Web. Consumer tax products accounted for 22% of the company's overall $1.1 billion in revenue last year.

"The marketing opportunity for tax software and online filing in 2002 could be big if the government cuts tax rates. I mean, who wouldn't want a faster refund?" said Deutsche Banc Alex. Brown analyst Justin Post in a note released Wednesday. Post rates the stock a strong buy, and his firm hasn't done any recent underwriting for the company. Intuit sells most of its tax software in its fiscal second and third quarters, preceding tax season. Since the start of the company's third quarter, Feb.1, Intuit has gained 17.5% and closed higher today, up $3.63, or 8.5%, to $46.44.

Intuit management says company history confirms this type of market opportunity. "Anytime we see significant tax changes, it has a very, very positive increase in sales from new customers. For example, our marketing materials for our tax calculation program might say 'Bush's tax cut will save you money, find out how much,'" Meighan said.

Some expectations may be priced into the stock. Intuit trades at a multiple of about 56 times this year's estimated earnings, compared with a multiple of about 33 times this year's earnings for Microsoft (MSFT Quote - Cramer on MSFT - Stock Picks). But estimates are that Intuit's earnings will grow better than 22% next year, more than twice those of Microsoft.

If the bill doesn't pass, Intuit will still hold on to its position as the dominant player in this market. The Mountain View, Calif.-based company has one less competitor this season because Microsoft ended its short run in tax-preparation software last year when it dropped its TaxSaver software. Microsoft, which was considered a feared competitor because of its overall strength, instead started an alliance with H&R Block (HRB Quote - Cramer on HRB - Stock Picks), which is now Intuit's main competitor, with its TaxCut product.

Intuit increased prices on the latest version of TurboTax, both the desktop and online version. Post said Intuit should maintain its lead, despite slowed TurboTax sales last quarter and H&R Block's offering of its tax software almost free this season.