H&R Block (HRB) Q3 Earnings: Will the Stock Disappoint?

H&R Block Inc.HRB is set to report third-quarter fiscal 2017 results after the market closes on Mar 7. In the last reported quarter, adjusted loss from continuing operations was narrower than the Zacks Consensus Estimate by a penny. H&R Block has a dismal earnings surprise history, significantly missing estimates twice in the trailing four quarters for a negative average surprise of 7.7%.

Let's see how things are shaping up for this announcement.

Key Factors to Consider

The performance of the company is tied to the overall health of the economy. With stressed economic environment, the overall tax filing market is expected to remain under pressure. As a result, we expect the impending quarterly earnings to remain stressed.

Furthermore, H&R Block faces huge litigations in connection with its various operating activities. It is exposed to employment related lawsuits in various parts of the country and compliance fee litigation in Missouri state and federal courts. Such litigations weigh on investor sentiment and hamper the company's goodwill. Moreover, its debt-to-equity ratio compares unfavorably with the sector's average. Additionally, the cash position of the company is fluctuating in nature. This raises skepticism about the company's ability to engage in de-leveraging activities.

H&R Block, Inc. Price and EPS Surprise

H&R Block, Inc. Price and EPS Surprise | H&R Block, Inc. Quote

In addition, H&R Block has a fairly high interest expense burden that reduces its profitability. This is primarily attributable to issuance of Senior Notes to the tune of $1 billion in 2015. The high interest obligations are likely to adversely affect the earnings of the to-be-reported-quarter as well.

However, H&R Block has come up with some innovative products to draw more customer attention and thereby improve its revenues. These include a redesigned website to file taxes anywhere on the go, high security standards to prevent tax identity theft and enhanced security features to safeguard taxpayer information. With such core business focus, the company anticipates providing improved services to its existing clientele, while attracting newer ones to augment its revenues.

Earnings Whispers

Our proven model does not conclusively show that H&R Block is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at -8.70%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: H&R Block has a Zacks Rank #4 (Sell).

As it is we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Tailored Brands, Inc. TLRD has an Earnings ESP of +9.09% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

McCormick & Company, Incorporated MKC has an Earnings ESP of +5.33% and a Zacks Rank #3.

Fred's, Inc. FRED has an Earnings ESP of +21.05% and a Zacks Rank #3.

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McCormick & Company, Incorporated (MKC): Free Stock Analysis Report

Fred's, Inc. (FRED): Free Stock Analysis Report

H&R Block, Inc. (HRB): Free Stock Analysis Report

Tailored Brands, Inc. (TLRD): 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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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