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

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H&R Block, Inc.’s (HRB - Free Report) shares have gained 24.5% over the past three months against 5.3% decline of the industry it belongs to and 3.3% growth of the Zacks S&P 500 composite.

With a long-term expected growth rate of 10% and a market cap of $3.5 billion, H&R Block seems to be a stock that investors should retain in their portfolios.

What’s benefiting the Company

H&R Block’s performance remains strong, driven by strength across Tax Pro Review, Tax Pro Go, and Approve Online features. The company has enhanced digital capacities to support its remote-working model.

Notably, in the first quarter of fiscal 2021, the company’s adjusted EPS came in at 55 cents while it suffered a loss of 72 cents in the year-ago quarter.Revenues of $601 million increased more than 100% year over year.

Digital enablement of business, client addition and retention in both Assisted and DIY, expansion in small businesses and greater usage of AI and machine learning are some key factors that are shaping up prominently to drive the company in the post-pandemic period.

Some Risks

H&R Block's total-debt-to-total-capital ratio of 0.96 was higher than the industry’s 0.84 at the end of the first quarter of fiscal 2021. A high debt-to-capitalization ratio indicates that the proportion of debt to finance assets is on the rise.

Further, cash and cash equivalent balance of $2.8 billion at the end of quarter was well below the debt level of $3.5 billion, underscoring that the company doesn’t have enough cash to meet this debt burden.

Zacks Rank and Stocks to Consider

H&R Block currently carries a Zacks Rank #3 (Hold).

Some top-ranked stocks in the broader Zacks Business Services sector are Republic Services (RSG - Free Report) , Gartner (IT - Free Report) and Insperity (NSP - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1(Strong Buy) Rank stocks here.

Long-term earnings (three to five years) growth rate for Republic Services, Gartner and Insperity is estimated at 9.4%, 13.5% and 15%, respectively.

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