Tax prep outfit H&R Block (NYSE:HRB) will report fourth-quarter and full-year 2007 financial results on Thursday, June 21.
What analysts say:
- Buy, sell, or waffle? Analysts must have gotten a good refund this year, as six of the eight analysts are bullish on the Block with a buy rating, while the other two say hold.
- Revenue. This being the quarter that includes the tax return season, revenue is expected to be about three times what it is in the other three quarters, but it's still forecast to be flat year over year at $2.5 billion.
- Earnings. Profits, on the other hand, are expected to rise 5% to $1.88 per share.
What management says:
Despite being primarily a tax prep firm, H&R Block also had a mortgage arm that contributed as much as 25% of revenue in 2006 but got caught up in the subprime meltdown. In February, the company set aside $111 million for losses associated with the Option One mortgage division (which caused the third-quarter loss) and then revised those numbers down more afterwards. It was able to unload the unit to private equity firm Cerberus Capital and will incur a charge of between $290 million and $320 million in the fourth quarter.
Chairman and CEO Mark Ernst said focusing on taxes is key to progress. "We've done well in executing our strategy to regain leadership in the early tax season. The combination of market-leading early season loan products, H&R Block Bank's Emerald Card, timely opening of tax offices, and outstanding execution in the early season have combined for a good start to our tax season."
The Emerald Card is Block's prepaid credit card co-branded with MasterCard (NYSE:MA) and is offered through its bank services, another division that could be sold off to strengthen the tax preparer's financial position.
What management does:
Despite the troubles of its mortgage division, the tax prep segment should see stronger results. Even rival Jackson Hewitt (NYSE:JTX) was able to report a 21% increase in diluted earnings per share despite stating it had gotten off to a slow start to the tax year. With Block saying it had gotten the early lead, that bodes well for a better result, even if it's masked by the Option One mortgage meltdown.
|
01/06 |
04/06 |
07/06 |
10/06 |
01/07 | |
|---|---|---|---|---|---|
|
Gross |
41.8% |
41.8% |
39.5% |
39.9% |
39.8% |
|
Operating |
19.5% |
19% |
15.7% |
17.2% |
16.7% |
|
Net |
13.7% |
10.1% |
8.1% |
6.2% |
4.7% |
One Fool says:
The rise of online tax and tax prep software like that offered by Intuit (NASDAQ:INTU) had, at one time, seriously cut into H&R's business. But no more. IRS e-filing data shows that there has been an 8% increase in the number of individuals filing their returns online, which has caused concern that the maker of TurboTax was losing market share. H&R Block's own data suggests that this is indeed what's going on, as earlier this year it reported a 15% increase in use of its own services, including its competing TaxCut software.
With the mortgage arm gone, or soon to be, and its banking division responding above expectations, H&R Block is looking like it's prepared for a surprise. If the rumors that are beginning to swirl prove true, that H&R Block is on the block and may be a candidate for a buyout itself following the sale of Option One, investors may very well be in for a sweet refund themselves.
Related Foolishness:
- Quick Take: H&R Block Unloads Subprime Business
- A Taxing April for Jackson Hewitt
- Lending Isn't Helping at H&R Block
- Foolish Fundamentals: Margins
H&R Block has earned a one-star rating from Motley Fool CAPS, the new investor intelligence community. You can add your voice to the new stock-rating service by joining today. It's free!
MasterCard is a Motley Fool Inside Value recommendation. It's not a taxing decision to get full access to all of the market-beating recommendations when you use a risk-free 30-day guest pass to start your trial subscription. Intuit is a former Inside Value selection.
Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
