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H&R Block shares jump after Morgan Stanley upgrade

NEW YORK (AP) -- Shares of H&R Block Inc. rose Tuesday after a Morgan Stanley analyst recommended that investors buy shares of the biggest U.S. tax preparer, largely because of its plan to capitalize on the new federal health care program.

THE SPARK: Analyst Thomas Allen raised his rating on the Kansas City, Mo.-based Block to "Overweight," or "Buy," and increased his 52-week target price for H&R Block to $33 per share from $25.

THE BIG PICTURE: The new health insurance exchanges in the states, part of the federal Affordable Care Act known as "Obamacare," opened Tuesday. They are designed to make it easier to obtain health insurance. Starting next year, the Internal Revenue Service will begin enforcing a requirement that most Americans have health insurance or face fines.

H&R Block recently signed a deal with online insurance company GoHealth to provide Block customers with the option of buying health insurance over the Internet.

THE ANALYSIS: Allen said in a note to investors that H&R Block's client relationships "create a significant opportunity" for getting into health insurance brokerage, which is amplified by the federal program taking effect. Other tax preparers, such as Jackson Hewitt and Intuit, the parent of TurboTax, also have entered partnerships with health insurance brokers, Allen noted, showing that it's potentially a great opportunity.

Since it announced the agreement with GoHealth early last month, H&R Block stock has underperformed the Standard & Poor's index by 7 percent amid concern that "Obamacare" could be delayed. That's not justified, Allen wrote.

SHARE ACTION: H&R Block shares gained $1.20, or nearly 4.5 percent, to close Tuesday at $27.86. The stock has traded between $16.44 and $32.09 over the past 52 weeks, and is up 50 percent since the start of the year.