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H&R Block Making Lemonade Out Of ObamaCare Lemon

Posted
10/14/2013 6:03:00 PM
By: Investor's Business Daily
Referenced Stocks:HRB

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.