With a potential recession on the horizon, Citi says it’s time for investors to put their money in back-office software names Intuit and Box. Analyst Steven Enders initiated and assumed coverage of the sector, naming Intuit among the bank’s top picks in the space and Box a buy. “Entering the next phase and a potential recession, we favor names that could see increased demand priority, can drive solid ROIs with quick payback periods, a proven track record of sales execution, have platform opportunities to consolidate spend, and are mission critical with resilient pools of spend,” Enders wrote in a note to clients Wednesday. Going forward, Enders sees this software space as ripe for consolidation. He added that a continuously distributed labor market and drive toward adoption of automation in the next downturn should guide the segment going forward. “Growth vs. profitability appears back in-line with historical averages – we ultimately believe the next leg in software will either be driven by further recessionary concerns with a flight to estimate resiliency or expectations for further rate cuts driving a return to growth,” he wrote. Intuit’s proven strong track record in the past recession should foreshadow resilience for the company going forward, while a price hike of its QuickBooks product can help the company play defense ahead, he wrote. At the same time, Enders said investors are underappreciating Box’s transformation and improved execution since it went public. “With Box currently trading near all-time highs and valuation at 12x CY24 EV/FCF (vs. FCF generating peers at 25x), we see opportunities for BOX to breakout with further multiple expansion,” Enders said. Shares of Intuit have slumped about 33% this year, but Citi’s $538 price target suggests the stock could rally more than 24% from Wednesday’s close. Box’s stock has performed better year to date, with shares down just 1.7%. Citi’s $34 price target implies a 32% upside for the stock. — CNBC’s Michael Bloom contributed reporting
