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Why Should You Retain H&R Block (HRB) in Your Portfolio?

Zacks Equity Research

Shares of H&R Block, Inc. HRB have gained 3.9% in the past month, outperforming the 2.8% rally of the Zacks S&P 500 composite.

With expected long-term earnings per share growth rate of 10% and a market cap of $5.1 billion, H&R Block is a stock that investors should retain in their portfolio for now.

What are the Positives?

The tax industry is growing steadily since 2005 in both assisted and DIY channels, thus H&R Block looks well poised to gain from the prevailing opportunities.

In its assisted business, the company is focused on investment in price decrease, developing and delivering on a clear brand promise and enhancing the quality service delivery. In the DIY business, H&R Block continues focusing on competitive pricing and investment in product innovation and user experience improvement.

H&R Block, Inc. Revenue (TTM)

H&R Block, Inc. Revenue (TTM) | H&R Block, Inc. Quote

H&R Block is investing in three broad areas— price, technology, and operational excellence. On the price front, the company is focusing on price decrease and is making prices up front and transparent. With technology, H&R Block is building a new tax engine to consolidate multiple systems, invest in cross-channel capabilities to streamline client experience across platforms, move its physical data centers to the cloud, and optimize data architecture and analytics platform. On the operational excellence, the company is improving execution of standard operating procedures for better quality and consistency of service delivery. These initiatives are aimed at achieving overall objectives of clients, revenue, and earnings growth.

The company’s virtual products - Tax Pro Go, Tax Pro Review and Ask a Tax Pro offers customers modern solutions in tax preparation, placing it in a better position to attract and retain customers.

Last Words

Despite riding on significant growth prospects, H&R Block is not free from overhangs. The company is witnessing escalation in costs stemming from heavy investments. It faces huge litigations in connection with its various operating activities that drain resources and hamper goodwill. Nevertheless, we believe that prudent investments will drive H&R Block’s growth in long run.

Zacks Rank & Stocks to Consider

Currently, H&R Block is a Zacks Rank #3 (Hold) stock.

Some top-ranked stocks in the broader Zacks Business Services sector are Insperity NSP, MAXIMUS MMS and Automatic Data Processing ADP. While Insperity sports a Zacks Rank #1 (Strong Buy), both MAXIMUS and Automatic Data Processing carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term expected EPS (three to five years) growth rate for Insperity, MAXIMUS and Automatic Data Processing is 18%, 10% and 13%, respectively.

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