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What's in the Cards for H&R Block (HRB) in Q1 Earnings?

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H&R Block Inc. (HRB - Free Report) is set to report first-quarter fiscal 2018 results after the market closes on Aug 29. The company has a positive earnings surprise history, beating estimates twice in the trailing four quarters with an average surprise of 9.6%.

Let’s see how things are shaping up for this announcement.

Key Factors to Consider

The performance of the company is tied to the overall health of the economy. With stressed economic environment, the overall tax filing market is expected to be under pressure. As a result, we expect the impending quarterly earnings to remain stressed.

Furthermore, H&R Block faces huge litigations in connection with its various operating activities. It is exposed to employment related lawsuits in various parts of the country and compliance fee litigation in Missouri state and federal courts. Such litigations weigh on investor sentiment and hamper the company’s goodwill. Moreover, its debt-to-equity ratio compares unfavorably with the sector’s average. Additionally, the cash position of the company is fluctuating in nature. This raises skepticism about its ability to engage in de-leveraging activities.

However, H&R Block has come up with some innovative products to draw more customer attention and thereby improve its revenues. These include a redesigned website to file taxes anywhere on the go, high security standards to prevent tax identity theft and enhanced security features to safeguard taxpayer information. With such core business focus, the company anticipates providing improved services to its existing clientele while attracting newer ones to augment its revenues.

As part of the nationwide program for health care exchange enrolment, H&R Block partnered GoHealth Insurance whereby its clients can purchase health care insurance online or over the phone through licensed GoHealth agents. GoHealth thus helped H&R Block make foray into the health insurance brokerage business. This, in turn, will open up additional revenue-generating opportunities for the company. Furthermore, H&R Block noted that its focus on the tax business and successful navigation through the implementation of  Affordable Care Act (ACA) has resulted in revenue improvement and margin expansion in the last three years. Also, the company expects number of ACA impacted returns to grow between 20% and 25% in the next two to four years. This augurs well for its long-term growth.

Earnings Whispers

Our proven model does not conclusively show that H&R Block is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. This is because both Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 63 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

H&R Block, Inc. Price and EPS Surprise

 

H&R Block, Inc. Price and EPS Surprise | H&R Block, Inc. Quote

Zacks Rank: H&R Block has a Zacks Rank #3 (Hold). This when combined with a 0.00% ESP makes surprise prediction difficult.

Note,  we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Ctrip.com International, Ltd. has an Earnings ESP of +100% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ollie's Bargain Outlet Holdings, Inc. (OLLI - Free Report) has an Earnings ESP of +1.35% and a Zacks Rank #3.

ScanSource, Inc. (SCSC - Free Report) has an Earnings ESP of +2.44% and a Zacks Rank #3.

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