We have retained our Neutral recommendation on
H&R Block Inc.
). The stressed economic environment, high unemployment levels
and delayed start to the tax season are expected to weigh on the
positive effects of the company's cost cutting initiatives.
The sluggish economic environment and high unemployment levels
have pressurized the overall tax filing market that is H&R
Block's focus. Again, timing issues from the IRS regarding
opening its e-file system on Jan 30 and thus the delayed start of
the U.S. tax season has compelled the top line to decline during
the period. As a result H&R Block's earnings are expected to
remain soft in the near term as the company will take time to
Over the last 30 days two of five estimates moved downwards,
pulling down the Zacks Consensus Estimate for the fourth quarter
of fiscal 2013 to $2.60.
Additionally, continued shift from assisted tax preparation to
the do-it-yourself mode, mainly through the digital online space
poses a threat to H&R Block's business. Though the company is
geared to grow its digital business, the pace of growth is not
aggressive enough to catch up with the growing competition.
Counting on the positives, H&R Block has emphasized reducing
expenses through workforce reduction, cutting down overhead
expenses and increasing operational efficiency. The company has
eliminated 350 positions and closed down 200 underperforming
offices. Management expects these strategic realignments to help
the company realize an annual savings of $85-$100 million by the
end of the fiscal year 2013. Furthermore, the deal with Sears,
where H&R Block intends to focus on the 112 best performing
Sear locations is expected to be slightly accretive to fiscal
Further, H&R Block continues to increase shareholders' value.
The company has already spent $315.0 million to repurchase shares
in the first nine months of fiscal 2013. H&R Block also
declared a quarterly dividend of 20 cents in Mar 2013, boasting
of a dividend yield of 2.9%, better than the industry yield of
1.83% and 0.93% yield of another industry major
Monro Muffler Brake Inc.
). The company also scores strongly with the credit rating
However, the company's exposure to various employment related
lawsuits and compliance fee litigations might weigh on investor
sentiments and hamper the company's goodwill. Additionally
H&R Block's decision to drop the acquisition plans of 2SS
Holdings, Inc, developer of Tax ACT digital tax preparation
solutions, did not help the company to expand its business in the
digital market which is now being dominated by
The tax preparer currently carries a Zacks Rank #4 (Sell).
Other stocks to consider
Among others in the industry,
Weight Watchers International Inc.
) carries a Zacks Rank #2 (Buy) and is worth noting.
BLOCK H & R (HRB): Free Stock Analysis
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MONRO MUFFLER (MNRO): Free Stock Analysis
WEIGHT WATCHERS (WTW): Free Stock Analysis
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