H&R Block Making Lemonade Out Of ObamaCare Lemon


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As new laws and regulations make life more complicated, some companies find a way to win under the changing landscape.

H&R Block ( HRB ) has seen the playing field change in two respects.

First, the company's savings and loan arm faced higher capital requirements under the Dodd-Frank law. H&R responded by putting its S&L arm on the block. A deal was in the works, but Republic Bank recently backed out of the agreement. H&R still intends to unload the unit.

Implementation of the new health insurance law is the second factor. Initially there was speculation that many IRS refunds that H&R Block navigates for its customers would be wiped out by the ObamaCare's tax penalty for not having health insurance. Human nature being human nature, H&R Block is more likely to get the blame than the new law, or at least that was the fear.

In September, H&R Block responded by reaching a deal with GoHealth to develop an H&R Block-branded service to help clients shop and enroll in a health care plan while determining eligibility and applying for the government subsidy.

At the earnings call in September, CEO William Cobb said the law will "not result in a materially positive impact to our business in fiscal year 2014."

Still, the GoHealth deal essentially lessened fears of an ObamaCare-related negative impact on H&R Block. Also, ObamaCare is complicated and hard to understand, and that plays to H&R Block's strength.

Because the fiscal fourth quarter ending in April is H&R Block's moneymaking quarter, investors should focus on annual earnings.

EPS grew 25% last fiscal year on flat revenue. The Street expects 11% growth this fiscal year and 16% in the following year. Sales growth of 4% is expected both years.

The company's quarterly dividend is 20 cents a share, which works out to an annualized yield of 2.9%. The dividend has not been increased in the past eight quarters.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance Investing Ideas
Referenced Stocks: HRB

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