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H&R Block to Gain From Tax Industry Growth, Expects Cost Hike

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H&R Block, Inc. (HRB - Free Report) is expected to benefit from growth in the tax industry, increased investments and strong cash generation capacity.

Recently, the company delivered first-quarter fiscal 2019 results, wherein loss per share from continuing operations amounted to 72 cents, narrower than the Zacks Consensus Estimate of a loss of 79 cents. The figure widened 10 cents on a year-over-year basis. Revenues came in at $145 million, which beat the consensus mark by $9 million and improved 5.1% year over year.

The company’s surprise history looks impressive. It beat estimates in each of the trailing four quarters, with an average beat of 6.9%. For the fiscal second quarter, the consensus estimate remained unchanged at a loss of 94 cents in the past 30 days.

In a year’s time, shares of the company have gained 2.6% compared with the industry’s rise of 12.8%.

Tax Industry Offers Growth Opportunities

H&R Block is well poised to gain from opportunities offered by the tax industry which is growing steadily in assisted and DIY channels. In the assisted business, the company is focused on investment in price, development and delivering on clear brand promise and enhancement of the quality of service. In its DIY business, H&R Block continues to aim at competitive pricing and investment in product innovation along with user experience improvement.

Increased Investments to Achieve Overall Objectives of Revenue and Earnings Growth

H&R Block is investing heavily in price, technology and operational excellence to achieve overall objectives of revenue and earnings growth on a long-term basis. With price, it is focusing on reduction to maintain its competitive footing. On the technology front, H&R Block is building a new tax engine to combine multiple systems, invest in cross-channel capabilities to streamline client experience across platforms, transfer physical data centers to the cloud and optimize data architecture as well as analytics platform. With regard to operational excellence, the company is trying to improve execution of standard operating procedures for better quality and consistent service delivery.

H&R Block, Inc. Revenue (TTM)

 

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

Strong Cash Position

The company has a healthy balance sheet with robust cash generation ability. The company exited the first quarter with cash and cash equivalents of $979.1 million. Such strong cash position enables the company to seek for opportunities that indicate true potential and positions it for sustainable client, revenues and earnings growth.

Risks

With increased investment in technology and operations, H&R Block is likely to witness escalation in costs. This is expected to weigh on results through 2019.

The company’s business is significantly affected by seasonality. It generates a major portion of revenues and earns profit in the fourth quarter of the fiscal year, as most of its clients file their tax returns from January through April. Revenues stay significantly down and the company incurs loss in first three quarters of the fiscal year.

Zacks Rank & Key Picks

Currently, H&R Block carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader Consumer Discretionary Sector include American Woodmark Corporation (AMWD - Free Report) , Deckers Outdoor Corporation (DECK - Free Report) and Callaway Golf Company (ELY - Free Report) . While American Woodmark and Deckers Outdoor carry a Zacks Rank #2 (Buy), Callaway Golf sports a Zacks Rank #1 (Strong 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 American Woodmark, Deckers Outdoor and Callaway Golf is 9%, 12% and 25%, respectively.

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