H&R Block Retained at Neutral - Analyst Blog

By Zacks Equity Research,

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H&R Block Inc. ( HRB ) narrowed its loss in the fiscal third quarter when compared with the Zacks Consensus Estimates and year-ago results. The company's leading position in the tax preparer market along with its strategic initiatives to grow its business by gaining and retaining customers augur well for long-term growth.The company's efforts to return more value to its shareholders as well as its strong scoring with the credit rating agencies will also help retain investor confidence in the stock.

Nevertheless, the company's plans of dropping the acquisition of 2SS Holdings Inc., along with a stressed economic environment and unemployment levels and continued shift from assisted tax preparation to the do-it-yourself mode dwarfs the positives. We thus retain our Neutral recommendation on the company.

H&R Block remains focused on enhancing its client base. The company's five drivers have also helped it to gain market share, especially in the digital space. During fiscal third quarter, the company's year-to-date retention on last year's new EZ clients increased 500 basis points.

With the intention of returning more value to its shareholders, the Board of Directors authorized a 33% increase in its dividend. The company has a solid dividend yield of 5.51%, much above the industry average of 1.85% as well as of its nearest peer Intuit Inc. ( INTU ) with a dividend yield of 1.10%. The company is left with $1.2 billion under its share repurchase authorization. With a strong financial position, we expect the company to continue to enhance its shareholders value.

Recently Standard & Poors' affirmed the 'BBB' issuer credit rating based on its solid liquidity. H&R Block generated substantial cash flows during the tax season that has positioned it well to meet debt maturities, which in turn will lower the company's leverage. We believe, the company's strong ratings scores will help retain investor confidence and grow its business going forward.

On the flip side, H&R Block dropped its plan to acquire 2SS Holdings, Inc, developer of Tax ACT digital tax preparation solutions after the federal judge passed a ruling against it on antitrust grounds. Had the merger concretized, H&R Block would have had an enlarged client base and would have subsequently intensified competition in the digital market, which is presently dominated by Intuit.

Also, with the persisting stressed economic environment and unemployment levels, the overall tax filing market is expected to remain under pressure.

The quantitative Zacks #4 Rank (short-term Sell rating) for the company indicates downward pressure on the shares over the near term. Headquartered in Kansas City, Missouri, H&R Block Inc. is a leading provider of tax preparation services.

BLOCK H & R (HRB): Free Stock Analysis Report
INTUIT INC (INTU): Free Stock Analysis Report
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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: Investing , Business , Stocks
Referenced Stocks: HRB , INTU

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