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H&R Block (HRB) to Report Q2 Earnings: What's in Store?

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H&R Block Inc. (HRB - Free Report) is scheduled to report second-quarter fiscal 2018 results before the market opens on Dec 6. The company has a positive earnings surprise history, beating estimates thrice in the trailing four quarters with an average surprise of 11.4%.

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

Key Factors to Consider

H&R Block is continuing with its aggressive client expansion policy with compelling promotions and product offers. At the same time, the company is actively investing in innovative solutions that leverage its ability to better serve customers through customized products. 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 revenues.

As part of the nationwide program for health care exchange enrollment, 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 foray into the health insurance brokerage business. This, in turn, will open up additional revenue-generating opportunities for the company.

Furthermore, H&R Block has collaborated with BofI Federal Bank, wherein the latter would become the exclusive refund advance provider for its customers. The Refund Advance program continues to be a valuable product for the early season clients, who are looking to access their refund faster. Also, it supplements its Tax Plus product suite, which is the most robust in the industry.

However, 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.

In addition, 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 sentiments 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.

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 Zacks Consensus Estimate, is 0.00%. 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. While this increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

Note that 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:

Dollar General Corporation (DG - Free Report) has an Earnings ESP of +0.89% and Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Credicorp Ltd. (BAP - Free Report) has an Earnings ESP of +1.28% and a Zacks Rank #2.

The Cooper Companies, Inc. (COO - Free Report) has an Earnings ESP of +0.56% and a Zacks Rank #2.

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