On Jan 13, we issued an updated research report on H&R Block Inc. (HRB).
In the second quarter of fiscal 2015, H&R Block reported operating loss that was wider than Zacks Consensus Estimate and year-ago loss. An increase in expenses largely accounted for the miss.
Being a tax preparer, the company generates the majority of revenues from January through April of each year as tax returns are filed during these months. As a result, the company incurs loss through the first three quarters of a fiscal.
H&R Block is intensifying its focus on its core business. It is divesting its bank to BofI Federal Bank, a subsidiary of BofI Holding, Inc. (BOFI). The divestiture will free it from being subject to regulations by the Federal Reserve Bank as a savings and loan holding company; else it will have to meet higher capital requirements. While the transaction will release excess capital, the company had to incur one-time charges. Earnings dilution begining fiscal 2016 would also result from a service agreement with BofI Federal Bank.
H&R block is slated to gain from the Affordable Care Act (ACA) wherein all Americans should either have health insurance or pay penalty through tax returns. For those choosing to receive a subsidized coverage, there will be a mandatory filing in 2015 to report income earned during calendar year 2014. Therefore, the company expects to gain from ACA from fiscal 2015 end onward.
Also, as part of the nationwide program for health care exchange enrolment, H&R Block partnered GoHealth Insurance whereby its clients can purchase their health care insurance online or over the phone through licensed agents of the latter. This, in turn, will open up additional revenue-generating opportunities for the company.
H&R Block has returned value to its shareholders. While it is still left with $857.5 million under its share repurchase authorization, its dividend yield betters the industry average.
However, this Zacks Rank #4 (Sell) stock has been experiencing higher expenses that have been compressing margin expansion. It also faces competition from Intuit Inc. (INTU).
Moreover, the performance of H&R Block is tied to the overall health of the economy. Also, with international exposure, its operations are subject to changes in trade regulations, profit repatriation regulations, exchange rate fluctuations and the economic condition of the countries abroad.
Stock Worth Considering
A better-ranked stocks in the industry is Outerwall Inc. (OUTR), which sports a Zacks Rank #1 (Strong Buy).
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