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H&R Block Reiterated at Neutral

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We have retained our Neutral recommendation on H&R Block Holdings Ltd. (HRB - Free Report) as the stressed economic environment and high unemployment levels will likely weigh on the positives. The tax preparer currently carries a Zacks Rank #3 (Hold).
Why Reiterate?

Over the last 30 days one of four estimates moved downwards, keeping the Zacks Consensus Estimate for the third quarter of fiscal 2013 at 2 cents and translating into a year over year increase of 325%.

Owing to the sluggish economic environment and high unemployment levels, the overall tax filing market is expected to remain stressed and H&R Block is no exception. Moreover, the continued shift from assisted to do-it-yourself mode of tax preparation mainly through digital online space is a threat to the company’s operations.

Though the company is now growing its digital business, the pace of growth is not yet satisfactory. The decision to drop the acquisition of 2SS Holdings, Inc, developer of Tax ACT digital tax preparation solutions led to dwindling market demand for the services of H&R Block in the digital market which is presently dominated by Intuit Inc. (INTU - Free Report) .

Counting on the positives, H&R Block’s cost reduction initiative particularly it’s restructuring program to reduce workforce, cut down overhead expenses and augment operational efficiency has helped it to post improved operating earnings and narrow its loss.

It expects to realize net annualized savings of $85 to $100 million from this strategic realignment by the end of fiscal year 2013. Furthermore, the deal with Sears (SHLD), where H&R Block intends to focus on the 112 best performing Sear locations is expected to be slightly accretive to fiscal 2013 earnings

H&R Block continues to increase shareholders’ value. The company has already spent $315.0 million to repurchase shares in the first six months of fiscal 2013. In June 2012, the Board approved another $2 billion share repurchase authorization.

H&R Block also boasts a dividend yield of 3.36%, higher than the 1.36% dividend yield of Weight Watchers International Inc. (WTW - Free Report) and 3.43% of that of Western Union Company (WU - Free Report) , among others from the industry. The company also scores strongly with the credit rating agencies.

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