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This Common Tax Preparer Is Hitting 52-Week Highs

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Like animals in nature, stocks tend to move in groups. The company a stock keeps can help us determine which industry groups are leading the market. The majority of past stock market winners were in top industry groups before they went on major runs.

How can we identify which industries are leading the market? Fortunately for investors, our Zacks Industry Rank makes the process simple. Zacks classifies all stocks into one of approximately 250 industry groups based on the Zacks Rank of the individual stocks. The average Zacks Rank is calculated for every industry group each trading day.

We put the Zacks Industry Rank to the test and compared how the top half (industries with the best average Zacks Rank) and the bottom half (industries with the worst average Zacks Rank) fared against the S&P 500. This study was conducted over the ten-year period from 2008-2017.

Zacks Investment Research
Image Source: Zacks Investment Research

Over this timeframe, using a one-week rebalance, the top half beat the bottom half by a factor of more than 2 to 1. Clearly, investing in stocks contained within the top industry groups can give investors a leg up on the market.

Let’s take a look at a current example. The Zacks Consumer Services – Miscellaneous industry group is ranked in the top 38% of all Zacks Ranked Industries. This means that more stocks within this industry are experiencing positive earnings estimate revisions, which is at the heart of the Zacks Rank and is the most powerful force impacting stock prices.

Quantitative research studies have shown that approximately half of a stock’s future price appreciation is due to its industry grouping. Also note the favorable characteristics for this industry:

Zacks Investment Research
Image Source: Zacks Investment Research

By investing in stocks within the best groups, we can provide a constant ‘tailwind’ to our investing success. Let’s take a look at a well-known tax preparer within this leading industry.

H&R Block, Inc. (HRB - Free Report)

H&R Block is the world’s largest income tax filing company. HRB provides assisted tax return preparation and do-it-yourself (DIY) tax return preparation services to the general public. The company offers its services through a system of retail offices primarily located in the U.S., Canada, and Australia. HRB also provides small business financial solutions and online access to service plans. H&R Block was founded in 1955 and is headquartered in Kansas City, MO.

HRB has surpassed earnings estimates in each of the past four quarters, posting an average earnings beat of 21.04% over that timeframe. The tax preparation company most recently posted fiscal Q3 EPS earlier this week of $4.11, a 17.09% surprise over the $3.51 consensus estimate. Shares have risen 35% this year while the market has been in correction mode.

H&R Block, Inc. Price, Consensus and EPS Surprise

H&R Block, Inc. Price, Consensus and EPS Surprise

Revenues in the current fiscal year are expected to climb 55.62% to $3.32 billion relative to last year. Make sure to keep an eye on HRB as the stock continues to hit a series of 52-week highs.


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