This Software Company Is Likely To Offer Better Returns Over Boston Scientific Stock

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We think that Intuit stock (NASDAQ: INTU), a company that specializes in financial and tax preparation software, currently is a better pick compared to medical devices maker Boston Scientific stock (NYSE: BSX), despite INTU being more expensive of the two with its P/S ratio of 11.2x, compared to 5.0x for BSX. We compare these two companies due to their similar revenue base. Although both the companies saw a rise in revenue over the last twelve months, the growth has been much better for Intuit.

If we look at stock returns, Intuit’s 11% growth is better than 6% for BSX over the last year. This compares with 6% growth in the broader S&P 500 index. While both the companies are likely to see continued top-line expansion, Intuit is expected to outperform. There is more to the comparison, and in the sections below, we discuss why we believe that INTU stock will offer better returns over BSX stock in the next three years. We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis Intuit vs. Boston ScientificWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

1. Intuit’s Revenue Growth Has Been Stronger

  • Both companies managed to see sales growth over the last twelve months. Still, Intuit has witnessed comparatively faster revenue growth of 48% vs. just 20% for Boston Scientific. The Credit Karma acquisition buoyed Intuit’s LTM revenue growth.
  • Looking at a longer time frame, Intuit’s sales grew at a CAGR of 17.1% to $11.4 billion over the last twelve months, compared to $6.8 billion in fiscal 2019, while Boston Scientific’s revenues have risen at a CAGR of 7.2% to $11.9 billion currently from $9.8 billion in 2018.
  • For Boston Scientific, the revenue growth has been buoyed by its Left Atrial Appendage Closure (LAAC) device – Watchman – which continues to gain market share driven by a higher physician utilization rate. However, it is expected to face increased competition from the likes of Abbott in the future.
  • For Intuit, the strong revenue growth over the recent past can be attributed to more people and small businesses opting to file tax returns on their own rather than visiting an accountant, especially since the beginning of the Covid-19 pandemic. Furthermore, in Q2FY21, the company acquired Credit Karma (now a separate reportable segment), which garnered $416 million revenue in Q1FY22. The segment offers personalized recommendations of credit card, home, auto, and personal loans, and insurance products, among others, to its customers. It generates revenue from cost-per-action transactions related to credit card issuances and private loan funding.
  • Our Boston Scientific Revenue and Intuit Revenue dashboards provide more insight into the companies’ sales.
  • Looking forward, Intuit’s revenue is expected to grow at a faster pace compared to Boston Scientific over the next three years. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 12.0% for Intuit, compared to a 6.5% CAGR for Boston Scientific, based on Trefis Machine Learning analysis.
  • Note that we have different methodologies for companies negatively impacted by Covid and for companies not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed in the three years before Covid to simulate return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.
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2. Intuit Is More Profitable, And It Offers Lower Risk

  • Intuit’s operating margin of 22.5% over the last twelve months is much better than 10.9% for Boston Scientific.
  • Historically, Intuit’s operating margins have been superior compared to Boston Scientific. Its operating margin declined from 27.3% in fiscal 2017 to 22.5% currently, while Boston Scientific’s operating margin declined from 16.2% in 2018 to 10.9% now. Our Boston Scientific Operating Income and Intuit Operating Income dashboards have more details.
  • Intuit’s free cash flow margin of 27.7% is higher than 15.7% for Boston Scientific.
  • Looking at financial risk, Intuit is better placed than Boston Scientific. Intuit’s 5.4% debt as a percentage of equity is much lower than 13.6% for Boston Scientific, while its 5.7% cash as a percentage of assets is in-line with 6.0% for the latter, implying that Intuit has a better debt position and an equally good cash cushion.

3. The Net of It All

  • We see that Intuit has demonstrated better revenue growth and profitability over Boston Scientific over the last few years, and it comes at a lower financial risk. However, the latter is available at a relatively lower valuation.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe INTU is currently the better choice of the two.
  • The table below summarizes our revenue and return expectation for Boston Scientific and Intuit over the next three years and points to an expected return of 43% for INTU over this period vs. 9% expected return for BSX stock, implying that investors are better off buying INTU over BSX, based on Trefis Machine Learning analysis – Intuit vs. Boston Scientific – which also provides more details on how we arrive at these numbers.

While INTU stock may outperform BSX, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Medtronic vs. Masco.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Mar 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
INTU Return -7% -32% 283%
BSX Return -6% -2% 93%
S&P 500 Return -4% -12% 88%
Trefis MS Portfolio Return -4% -14% 238%

[1] Month-to-date and year-to-date as of 3/14/2022
[2] Cumulative total returns since the end of 2016


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