On Jan 8, 2016, we issued an updated research report on H&R Block Inc. HRB.
H&R Block, being a tax preparer, does heavy business in the first four months of any calendar year. This is because most of the clients file their tax returns from January through April of each year. As such, most of H&R Block’s revenues from income tax return preparation and related services and products are received during this period. For the same reason, H&R Block generally operates at a loss through the first eight months of a fiscal year.
The Zacks Consensus Estimate for fiscal 2016 and 2017 is currently pegged at $1.90 and $2.25, respectively. These translate into a year-over-year increase of 8.38% for fiscal 2016 and 18.37% for the next fiscal.
To intensify its focus on the core business, the company successfully divested its bank unit to BofI Federal Bank, a subsidiary of BofI Holding, Inc. BOFI. Though the divestiture frees H&R Block from being subjected to regulations by the Federal Reserve, the company will have to incur one-time charges of 2–3 cents per share in fiscal 2016. Also, H&R Block estimates its bottom line to be hurt by 8–10 cents per share annually, beginning fiscal 2016.
Nonetheless, with the successful divestment, H&R Block drafted a capital plan that will not only meet its requirements, but will also enhance shareholders’ value. This capital plan involves issuance of new debt and hence increased leverage. At the same time, H&R Block has approved a $3.5 billion share repurchase program.
The tax preparation industry is increasingly being threatened by fraud. Therefore to guard its clients, H&R Block launched the Tax Identity Shield last year.
The first year of ACA implementation in the last tax season was also successful for the company. H&R Block expects total marketplace enrollment to increase over 65% to about 12 million people in the near term.
H&R Block presently carries a Zacks Rank #4 (Sell).
Stocks to Consider
Some better-placed miscellaneous consumer service providers are Care.com, Inc. CRCM and Providence Service Corp. PRSC. While Providence Service sports a Zacks Rank #1 (Strong Buy), Care.com carries a Zacks Rank #2 (Buy).
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