H&R Block Inc.
) 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
) 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
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.
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