Thursday, September 8, 2011

H&R Block: In Bargain Territory? : HRB

The past couple years have been taxing for shareholders of H&R Block (NYSE:HRB). And based on the latest earnings report, things are still looking grim. On Friday, the stock price plunged by nearly 12% to $13.41.

H&R Block reported a loss of $175.1 million, or $0.57 per share. As for revenues, they fell 2.5%, from $274.5 million to $267.6 million.

Not inspiring, huh? This is true. But when you drill down into the details, there are actually some silver linings.

First of all, H&R Block has been making the hard decisions to focus on its core tax business. To this end, the company has agreed to sell its RSM McGladrey unit, which provides financial services to businesses. The purchase price comes to $610 million.

Next, H&R Block is going to court to fight the Justice Department’s suit to prevent the company’s acquisition of TaxACT, a top provider of digital tax preparation services. As with any litigation, it’s tough to predict the outcome — but it should come soon. Besides, this shows H&R Block is serious about pushing its digital strategy. So even if the TaxACT deal does not go through, it’s a good bet that there will be substantial investments in this critically important category. As seen with Intuit’s (NASDAQ:INTU) success with TurboTax, the market is quite lucrative.

And yes, H&R Block’s brick-and-mortar business also is quite valuable. With more than 12,000 offices across the U.S., the company prepares over 21 million returns per year. No doubt this is a nice source of recurring revenues. The model also is capital-light, since there are more than 3,000 franchised locations.

Finally, H&R Block is trading at an attractive valuation, coming to about 11 times earnings. It also has a juicy dividend yield of 4.5%.

So is it time to buy? Well, even though H&R Block is showing promise, it probably still is not a good idea to jump in the stock right now. Instead, it makes more sense to wait a few months until the tax season gets into gear. But so far, it looks like H&R Block is making the right moves.

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