On Oct 15, we issued an updated research report on H&R Block Inc. (HRB).
This Zacks Rank #3 (Hold) tax preparer’s loss in the first quarter of fiscal 2015 bettered the Zacks Consensus Estimate loss by a penny on the back of an improved top line that compensated for the slight increase in expense. As most of the clients file their tax returns from January through April of each year, the company generally operates at a loss through the first eight months of each fiscal year.
The top line in the first quarter improved owing to a 5-day extension by the Canadian Revenue Agency of the completion of the Canadian tax season this year.
However, H&R Block is facing further delay in bank divestment due to regulatory issues. The divestiture is expected to close in the next tax season. The company is intensifying focus on its core tax business and has thus zeroed on vending H&R Block Bank to BofI Federal Bank, a subsidiary of BofI Holding, Inc. (BOFI). The bank transaction will result in about $200 million to $250 million of immediate excess capital.
H&R Block will nonetheless have dilution of about 7–9 cents per share on an annualized basis, stemming from the service agreement with BofI Federal Bank. The Zacks Consensus Estimate for 2015 is currently pegged at $1.93.
Moreover, the implementation of the Affordable Care Act will open up avenues generating revenues for H&R Block. Notably, H&R Block’s association with Go Health has helped it foray into the health insurance brokerage business.
H&R Block also enhanced its online digital tax software focusing on improving monetization and conversion. This category also continued to benefit from the migration of pen and paper filers. It envisions moderate growth at the assisted category and expects the digital category to outperform industry growth. The company also estimates total IRS filings to increase between 1% and 2% in 2015.
However, performance of H&R Block is dependant on 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 economic condition of the countries abroad.
Other Stock to Consider
Investors interested in personal services industry may consider better-ranked stocks like Care.com, Inc. (CRCM) and Hanesbrands Inc. (HBI). While Hanesbrands sports a Zacks Rank #1 (Strong Buy), Care.com carries a Zacks Rank #2 (Buy).
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