We are maintaining our Neutral recommendation on
H&R Block Inc.
), following its dismal start to the fiscal 2013 with both the
top line and bottom line failing to meet the Zacks Consensus
Estimate and falling short of the year-ago numbers.
Being a tax preparation company, substantially all revenues of
H&R Block come through the last four months of a fiscal year.
Most of the clients file their tax returns from January through
April of each year, thereby aiding H&R Block to generate
revenues from income tax return preparation and related services
& products are received during this period. Therefore,
through the first eight months of a fiscal year the company
generally operates at a loss.
H&R Block has a sustained focus on expense reduction
initiatives. It had undertaken realignment strategies that
included eliminating 350 positions and closure of 200
underperforming offices. The company expects to realize net
annualized savings of $85 to $100 million from this strategic
realignment by the end of fiscal year 2013. Also, it announced
its plans to exit some Sears locations, lowering the count to 112
from 500 it is currently operating. It also expects it to add
slightly to the fiscal 2013 earnings.
The company always remains focused on returning more value to its
shareholders. Riding on the strength of its balance sheet, the
company has already spent $315.0 million to buyback 21.3 million
shares in the first quarter of fiscal 2013 and is left with
$857.5 million under its share repurchase authorization. H&R
Block also boasts of a dividend yield of 4.5%, sufficiently
higher than the industry average of 2.4% as well as that of its
) with a dividend yield of 1.1%.
Also, last month, H&R Block announced that it is exploring
options for H&R Block Bank to have H&R Block, Inc. no
longer being regulated by the Federal Reserve as a savings and
loan holding company, as proposed rules of Federal Reserve would
require higher capital requirements on savings and loan holding
However, dropping the plan to acquire 2SS Holdings, Inc,
developer of Tax ACT dwarfs the positives to some extent, as the
merger would have intensified competition in the digital market,
which is presently dominated by Intuit.
Also, the performance of H&R Block is tied to the overall
health of the economy. With the continuation of a stressed
economic environment and unemployment levels, the overall tax
filing market is expected to remain under pressure, which
eventfully will weigh on the earnings of the company.
H&R Block currently carries a Zacks #3 Rank, representing a
short term Hold rating and blends well with our long term
recommendation. Intuit currently carries a Zacks #3 Rank. Since
their respective earnings release till date, H&R Block's
shares have gained 9.8% while Intuit shares gained only 0.6%.
BLOCK H & R (HRB): Free Stock Analysis
INTUIT INC (INTU): Free Stock Analysis Report
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