"Let’s face it, our grandparents are less likely to use TurboTax (broadly speaking) because they probably filed their first 20-30 tax returns manually or with the help of an accountant,” said Sterling Auty, JPMorgan analyst, in a note. “But for those that filed their first returns in what we think of as ‘The Digital Age’ (say, 1990-onwards), TurboTax was an increasingly popular option."
Intuit, which reports earnings Thursday, are up more than 20 percent this year as analysts start to catch onto this story. Auty, initiated the stock with an “overweight” rating earlier this month and gives it a $47 target.
The company’s other entrenched position is with its Quickbooks accounting software for small businesses. Intuit will use the successful online editions and strong brand names of these two products to expand into other areas such as healthcare and international markets, analysts said. Financial institutions that survived the credit crisis are also able to outsource their online offerings out to an Intuit platform to cut costs.
"Domestically, we believe there are 26 million small businesses and over 100 million households that are potential Inuit customers,” wrote Cowen analyst Peter Goldmacher in a note at the end of July. “We believe that Intuit’s penetration is roughly 25 percent in the small business market and 20 percent in the consumer market. Currently, Intuit generates 5% of its revenues from international markets."
Goldmacher, who started the stock with an "outperform," noted all the cross-selling possibilities for Intuit once it uses gets in front of more small business customers.
While most analysts are confident that this high flyer can continue to grow, some are worried about Intuit’s exposure to struggling small businesses right now. The latest survey from the National Federation of Independent Business showed small business confidence dropped again on fears about a weaker economy in the second half of 2010.
The stock will “remain in high 30s near term, given recent run in the shares off strong 2010 tax results,” wrote Barclays analyst Bradley Sills, in a note today. But the stock is still a long-term buy “given expectations for upward revisions to TurboTax and QuickBooks estimates as we move through 2011 tax season and the small business recovery in the first half of 2011.”
Case in point for this story: Tim Geithner. The non-baby boomer Treasury Secretary (born in 1961) infamously said during Congressional testimony that he flubbed his 2001 return using TurbTax software. Let’s hope all these new users are more careful than Geithner, the baby boomers are counting on us.
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John Melloy is the Executive Producer of Fast Money. Before joining CNBC, he was an editor for Bloomberg News, overseeing the U.S. Stock Market coverage team