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H&R Block Falls After Goldman Sachs Downgrades Stock To Sell

Dave Royse

Making tax filing easier may not be good for everyone.

The change in tax law that doubled the standard deduction means fewer people will need to itemize – and therefore fewer will likely use tax preparers, bad news for H&R Block Inc. (NYSE: HRB), Goldman Sachs believes.

The Analyst

Goldman Sachs' George Tong downgraded H&R Block from Neutral to Sell and lowered his price target from $27 to $22.

The Thesis

H&R Block’s tax preparation business makes up about 70 percent of the company’s overall revenue. According to the White House Council of Economic Advisors, doubling of the standard deduction could reduce the number of people who need to itemize their taxes to around 7 percent – far below the current 27 percent.

Goldman Sachs expects tax reform and the elimination of certain promotions, to accelerate assisted tax volume declines for Block from 0.6 percent in Fiscal 2018 to 4.3 percent in the coming year.

In addition to more people choosing the DIY route and doing their own taxes, the change also will likely lead to decline in pricing for tax preparers given the simplification, Tong said.

Price Action

Share prices of H&R Block were being slashed Thursday, down nearly 9 percent to $23.24 at time of publication.

Editor's note: The article originally said Morgan Stanley instead of Goldman Sachs. We apologize for the error.

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Latest Ratings for HRB

Date Firm Action From To
Jan 2019 Goldman Sachs Downgrades Neutral Sell
Dec 2018 Morgan Stanley Maintains Equal-Weight Equal-Weight
Aug 2018 Morgan Stanley Maintains Equal-Weight Equal-Weight

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