H&R Block Well Poised to Benefit from Ongoing Tax Season - Analyst Blog
We issued an updated research report on H&R Block Inc. HRB on Apr 6, 2015.
In its fiscal third-quarter, H&R Block incurred loss that was narrower than the Zacks Consensus Estimate and year-ago loss on higher revenues. Being a tax preparer, H&R Block earns mostly in the last four months of a fiscal and operates at a loss through the first eight months as most of the clients file their tax returns from January through April of each year. Nonetheless, this Zacks Rank #3 (Hold) company delivered positive surprises in three of last four quarters, with an average beat of 13.6%.
With the tax filing session on, H&R Block estimates EBITDA margin of 30% for fiscal 2015.
Effective Jan 1, 2014, as per the Affordable Care Act (ACA), all Americans should either have health insurance in 2014 or pay a penalty through their 2014 tax return. For those choosing to receive subsidized coverage, there will be a mandatory filing requirement in 2015 to report income earned during calendar year 2014. Therefore, from fiscal 2015, the company expects to gain from ACA.
Moreover, according to the Department of Health and Human Services, more than 11 million people signed up for healthcare insurance through the exchanges this year, up from 7 million enrollees the year before. This in turn will open up additional revenue-generating opportunities for H&R Block.
The insurer has been trying to focus on its core tax business. As such it decided to sell its H&R Block Bank, which entered into a divestiture deal with BofI Federal Bank, a subsidiary of BofI Holding, Inc. BOFI. Previously, it had divested RSM McGladrey to McGladrey& Pullen, LLP in Dec 2011. RSM McGladrey offered accounting, tax and consulting services to middle-market companies.
With respect to adding value to investments made by its shareholders, H&R Block has been paying dividends over the last 210 quarters, and has paid more than $4 billion of total dividend since it went public in 1962. Its dividend yield of 2.52% is better than the industry average of 1.96%. In addition, the company is left with $857.5 million as of Jan 31, 2015 under its authorization.
However, increasing expenses which are weighing on margin expansion, debt to equity ratio comparing unfavorably with the industry average, exposure to changes in trade regulations, profit repatriation regulations, foreign currency exchange rate fluctuations, and the economic condition of the country by virtue of having operations in other parts of the world are some of the concerns.
Stocks to Consider
Better-ranked stocks from the same sector include ExamWorks Group, Inc. EXAM and Healthcare Services Group Inc. HCSG. Both these stocks carry a Zacks Rank #2 (Buy).
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