With gas prices rising, recent strength in discretionary consumer spending is at risk. It might be a good time to think about what consumers just can't go without.
Filing tax forms, for example. Investors can benefit from this despised annual ritual two ways: companies that provide tax preparation services and companies that provide tax preparation software. According to the National Retail Federation's 2011 Tax Returns Consumer Intentions and Actions survey, both sectors should enjoy higher demand this year (see table).
Tax Preparation Method
|Prepare myself with computer software||33.6%||35.2%||4.8%|
|Use a tax preparation service||17.6%||19.3%||9.7%|
Source: National Retail Federation's 2011 Tax Returns Consumer Intentions and Actions Survey.
H&R Block is likely benefiting from the travails of competitor Jackson Hewitt Tax Services. RALs are Jackson's most profitable product, but the company has also been under pressure from the government to clamp down on the product. The firm has also been losing clients to "do it yourself" offerings. In early March, the company reported earnings that fell short of the consensus estimate and canceled its scheduled earnings call "in light of ongoing discussions between Jackson Hewitt and lenders." Management is working on a restructuring plan that may involve bankruptcy. Enough said.
Intuit appears poised to grow again this tax season, although a survey suggests H&R Block could take greater share. That said, Intuit's EPS is forecast to grow this year while H&R Block's is forecast to decline modestly. Either stock could be a good bet, with H&B Block's forward P/E of 10 times and 3.7% dividend yield appealing to value investors and Intuit's forward P/E ratio of 17 times suitable for growth investors.
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Fool contributor Cindy Johnson owns shares and covered calls of H&R Block. She does not do her own taxes. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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