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Intuit (NASDAQ:INTU) was in the spotlight on Wednesday as investment firm RBC Capital Markets started coverage on the Turbo Tax maker, citing its successful transition to subscriptions, opportunity from artificial intelligence and rising margins.
Shares were little changed in premarket trading.
Although roughly 80% of the company’s revenue comes from recurring subscriptions, that’s expected to grow even further, analyst Rishi Jaluria said. “We expect a growing mix-shift towards subscription and cloud, driving better unique economics,” Jaluria wrote in a note to clients.
Jaluria started Intuit with an Outperform rating and $760 price target.
Additionally, there is the expectation that tax codes and regulations are likely to become “increasingly complex,” which Jaluria said should be a “tailwind” for Intuit, given that it already manages more than $295B in payrolls for U.S. small and medium-sized businesses and $106B in consumer tax returns.
Intuit also has a “major” opportunity in generative AI, given that tax prep and accounting for small and medium-sized businesses are very service heavy, Jaluria said. As such, the company could help customers automate a lot of “low-hanging fruit” and help with cost savings.
“We expect this to translate to real revenue for Intuit, although caution that it could take longer for theory to become the reality that investors expect today,” Jaluria wrote.
Intuit has expanded its operating margins by 290 basis points since fiscal 2023, a trend that Jaluria said should continue. Adjusted operating margins could reach roughly 40% by fiscal 2026, while GAAP operating margins could hit roughly 30%, Jaluria said.