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H&R Block Enhances Core Biz; Capital Management in Place

Zacks Equity Research

On Jul 16, we issued an updated research report on H&R Block Inc. (HRB)

This Zacks Rank #2 (Buy) tax preparer posted solid results with fourth-quarter and fiscal 2014 earnings and revenues outpacing the Zacks Consensus Estimate and higher than the year-ago quarter figures. Increased revenues generated by Tax Services aided the performance.

H&R Block, in an effort to focus on core business, decided to divest its H&R Block Bank to BofI Federal Bank, a subsidiary of BofI Holding, Inc. (BOFI). Consequently, H&R Block will incur a one-time cost of about 2–3 cents per share in the fiscal 2014. It also estimates dilution of about 7–9 cents per share on an annualized basis, stemming from the service agreement with BofI Federal Bank. The bank transaction will result in about $200 to $250 million of immediate excess capital. The Zacks Consensus Estimate for fiscal 2015 is currently pegged at $1.95 per share.

Moreover, the implementation of Affordable Care Act will open up revenue generating avenues for H&R Block. Notably, H&R Block’s association with Go Health helped it to foray into the health insurance brokerage business.

H&R Block also enhanced its online digital tax software focusing on improving monetization and conversion. This category also continued to benefit from the migration of pen and paper filers.

Furthermore, the company remains committed to increase shareholders’ value. Its dividend yield of 2.4% exceeds the industry average of 2.1%. This, in turn, retains existing investors’ confidence and helps in attracting new investors. It also has $857.5 million remaining under its share buyback authorization.

However, performance of H&R Block is dependant on the overall health of the economy. Also, with international exposure, its operations are subject to changes in trade regulations, profit repatriation regulations, exchange rate fluctuations and economic condition of the countries abroad.  

Other Stock to Consider

Investors interested in personal services industry may consider better ranked stocks like Hanesbrands Inc. (HBI) and DeVry Education Group Inc. (DV). Both stocks carry a Zacks Rank #1 (Strong Buy).


Read the Full Research Report on HRB
Read the Full Research Report on DV
Read the Full Research Report on HBI
Read the Full Research Report on BOFI

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