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Why Is H&R Block (HRB) Up 0.5% Since Last Earnings Report?

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It has been about a month since the last earnings report for H&R Block (HRB - Free Report) . Shares have added about 0.5% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is H&R Block due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

H&R Block Q2 Loss Widens Year Over Year

H&R Block incurred second-quarter fiscal 2020 adjusted loss per share from continuing operations of 85 cents, lower than the Zacks Consensus Estimate of loss of 91 cents.

Loss increased 2.4% year over year due to rise in pre-tax loss (12.6% year over year to $261.3 million) and lower shares outstanding, partially offset by an increased tax benefit. The company usually incurs loss in the first three quarters of any fiscal year due to the seasonality of its tax business.

Revenues

Revenues of $160.8 million lagged the consensus estimate by 1.2% and increased 8% year over year. The improvement was driven by contribution from Wave Financial acquisition and improved tax return volumes.

Expenses

Total operating expenses were $403.5 million, 10.8% higher year over year. The increase was due to technology and Wave Financial related investments, and legal expenses, partially offset by lower occupancy costs.

Financial Position

H&R Block exited the quarter with cash and cash equivalents of $245.3 million compared with $607.7 million at the end of the prior quarter. Long-term debt and line of credit borrowings were $1.3 billion. The company used $209.5 million of cash in operating activities and capex was $27.7 million.

The company paid out dividends of $51.6 million in the quarter. A cash dividend of 26 cents per share is payable Jan 2, 2020, to shareholders of record as of Dec 9, 2019. H&R Block repurchased and retired around 5.7 million shares at an aggregate price of $136.9 million.

Outlook

The company reaffirmed its fiscal 2020 revenue growth and margin outlook. It continues to expect total revenue growth of 1.5% to 3.5%. EBITDA margin is expected between 24% and 26%. The company revised its effective tax rate expectation to 19-21% from 23-25%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 6.55% due to these changes.

VGM Scores

At this time, H&R Block has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise H&R Block has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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