H&R Block, Inc.’s (HRB - Free Report) financial performance is currently down due to corornavirus-led delay in tax season.
The company recently reported its fourth-quarter fiscal 2020 results, with adjusted earnings per share of $3.01 meeting the Zacks Consensus Estimate and declining 30.3% year over year. Revenues of $1.81 billion surpassed the consensus estimate by 4.3% but declined 22.3% year over year.
Shares of the company have declined 33% year to date compared with the 14.3% decline of the industry it belongs to.
Coronavirus Currently Weighing on Top and Bottom Lines
The company’s performance is currently weighed down due to a delayed tax season in response to the coronavirus pandemic. The deadline for Federal filing has been extended to Jul 15. Moreover, as small businesses have been badly hit by the pandemic, volumes and revenues through the company’s Wave payments platform are low.
In addition, a debt-laden balance sheet with high debt-to-capital ratio indicates increased risk of insolvency in challenging times. Total debt at the end of fourth-quarter fiscal 2020 was $4 billion, up from $3 billion at the end of the prior quarter. Total debt to total capital ratio of 0.98 is higher than the industry’s 0.93.
Main Drivers Post Pandemic
We believe the main drivers of the company’s performance post the pandemic will be digital enablement of business, client addition and retention in both Assisted and DIY, greater usage of AI, and machine learning for product improvement and expansion in small business.
Strategic investments in price, technology and operational excellence should help the company achieve overall objectives of clients, revenues and earnings growth over the long term.
Zacks Rank and Stocks to Consider
H&R Block currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Zacks Business Services sector are DocuSign (DOCU - Free Report) , Elastic N.V. (ESTC - Free Report) and SailPoint Technologies (SAIL - Free Report) . All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The long-term expected earnings per share (three to five years) growth rate forDocuSign, Elastic N.V. and SailPoint are at 31.2%, 26% and 15% respectively.
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