Microsoft Corporation (MSFT) and Intuit Inc. (INTU) are two of the most established players in the software industry. Tech giant MSFT’s segments include Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. INTU provides financial management and compliance products and services that leverage its software solutions.

While COVID-19 cases have decreased considerably in some of the major economies, several parts of the world are still experiencing increasing numbers of cases each day. In either case, the demand for software is expected to increase in the coming months because remote lifestyles are expected to continue for the foreseeable future. According to Grand View Research, the global business software and services market is expected to grow at an 11.3% CAGR over the next seven years. Consequently, both MSFT and INTU should witness increasing demand for their services in the coming quarters.

While INTU has gained 53.1% over the past year, MSFT has returned 36.7%. In terms of their past six months’ performance, INTU is a clear winner with 27.6% returns versus MSFT’s 17.3%. But which of these two stocks is a better pick now? Let’s find out.

Click here to check out our Software Industry Report for 2021

Latest Movements

On May 19, MSFT and LaLiga, Spain’s premier football association, announced an expansion of their partnership that is focused on digitally transforming the sports experience globally.

INTU’s Intuit ProConnect announced its partnership with Practice Ignition (PI) in April 2021 to increase productivity for tax professionals. With PI eliminating administrative tasks, it is expected to work in tandem with INTU’s professional tax products, facilitating better end-to-end workflow for tax professionals.

Recent Financial Results

MSFT’s revenue increased 19.1% year-over-year to $41.80 billion for the fiscal third quarter ended March 31, 2021. The company’s net income came in at $15.50 billion, which represents a 43.8% year-over-year increase. Its EPS declined 45.4% from the prior-year quarter to $2.10.

For the fiscal second quarter, ended January 31, 2021, INTU’s net revenue came in at $1.60 billion, down 7.1% year-over-year. The company’s net income decreased 91.7% from the same period last year to $20 million. Its EPS came in at $0.10, which represents a 92.4% year-over-year decline.

Past and Expected Financial Performance

MSFT’s revenue has increased at a 14.8% CAGR over the past three years. Its EPS and EBITDA increased at  53.7% and 19.7% CAGRs, respectively, over the same period.

Analysts expect MSFT’s revenue to increase 18.9% for the quarter ending September 30, 2021 and 16.2% in its fiscal year 2021. Its EPS is expected to grow 30.1% for the current quarter, ending June 30, 2021 and 34.9% in its fiscal year 2021. Also, its EPS is expected to grow at a 16.7% rate  per annum over the next five years.

In comparison, INTU’s revenue increased at an 11.1% CAGR over the past three years. The company’s EPS and EBITDA increased at 13.7% and 8.2% CAGRs, respectively, over the same period.

INTU’s revenue is expected to increase 46% for the about-to-be-reported quarter, ended April 30, 2021 and 18% in its fiscal year 2021. The company’s EPS is expected to grow 44.1% for the about-to-be-reported quarter and 8% in fiscal 2021. Also, INTU’s EPS is expected to grow at a 12/3% rate per annum over the next five years.

Profitability

MSFT’s $159.97 billion trailing-12-month revenue is much higher than INTU’s $7.72 billion. Furthermore, MSFT is more profitable, with a 35% net profit margin versus INTU’s 22.6%.

Also, MSFT’s ROA and ROE of 13.51% and 44.99%, respectively, compares favorably with INTU’s 12.39% and 27.74%.

Valuation

In terms of forward EV/S, INTU is currently trading at 12.98x, 16.4% higher than MSFT’s 10.85x. In terms of forward EV/EBITDA, INTU’s 36.28x is 37.6% higher than MSFT’s 22.63x.

So, MSFT is the more affordable stock.

POWR Ratings

MSFT has an overall rating of B which equates to a Buy in our proprietary POWR Ratings system. However, INTU has an overall rating of C which represents Neutral. The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.

MSFT has a B grade for Quality, which is in sync with its 68.4% trailing-12-month gross profit margin, compared to the 48.4% industry average. INTU’s 82.6% trailing-12-month gross profit margin is higher than the 48.4% industry average, helping it earn a B grade for Quality.

However, MSFT has a B grade for Stability while INTU has a C grade. MSFT has a B grade for Sentiment also, which is consistent with favorable analyst sentiment versus INTU’s C grade.

Of the 124 stocks in the Software-Application industry, MSFT is ranked #13, while INTU is ranked #52.

In addition to the POWR Ratings grades we’ve just highlighted, both MSFT and INTU are graded for Value, Growth, and Momentum. Click here to see the additional ratings for INTU. Also, get all of MSFT’s ratings here.

The Winner

The software industry is expected to keep growing with rising demand for better technology and faster software applications from various industries. While both MSFT and INTU are well positioned to benefit from the industry tailwinds, MSFT seems to be the better buy here based on its reasonable valuation and higher earnings growth potential.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about other top-rated stocks in the Software-Application industry

MSFT shares were trading at $251.69 per share on Tuesday afternoon, up $0.91 (+0.36%). Year-to-date, MSFT has gained 13.68%, versus a 12.28% rise in the benchmark S&P 500 index during the same period.

About the Author: Ananyo Guha Niyogi

Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand. More...

More Resources for the Stocks in this Article