If you're reading this and asking, "Who is Jackson Hewitt Tax Service (NYSE:JTX)?" don't bother going on the Sony-produced (NYSE:SNE) TV show Jeopardy.
All-time game-show champion Ken Jennings, a 30-year-old Salt Lake City software engineer, broke his 74-game winning streak Tuesday night (walking away with more than $2.5 million) when he failed to correctly produce the question for this answer: "Most of this firm's 70,000 seasonal white-collar employees work only four months a year."
The game-show "whiz kid" went with Motley Fool Stock Advisor recommendation FedEx (NYSE:FDX). As they might say at Del Monte Foods (NYSE:DLM), home of Charlie the Tuna, "Sorry, Charlie."
The correct question was: "Who is Jackson Hewitt Tax Service's biggest competitor: H&R Block (NYSE:HRB)?" OK. So I embellished the question. Jackson Hewitt wasn't mentioned. But, please, read on.
Not embellished were Jackson Hewitt's recent quarterly results. Revenue was down 1.7%, expenses were up 8.3%, and the net loss was 26% worse. Yikes, that's ugly -- although it is the slow season in the tax business (which picks up in January) and the company seems on track to have another solidly profitable year.
Jackson Hewitt's increased loss can be traced to two things: Since its July initial public offering by former owner Cendant (NYSE:CD), the company is incurring the costs of being a public company and the interest expense of $175 million in notes. Public company costs constituted $1.3 million in expenses for the most recent quarter.
Unlike Block, which has expanded aggressively into mortgages and other businesses, Jackson Hewitt is primarily focused on preparing taxes -- and seems inclined to let Intuit (NASDAQ:INTU) and Block fight it out in the tax-filing software market. That appears to be a strong strategy because Jackson Hewitt's operating margins are more than 10% higher than either Intuit or Block.
Analysts expect the company to earn $1.14 this fiscal year and $1.40 next year. Currently trading at a modest 20 times trailing earnings, the shares are up 30% since the company's IPO. With death and taxes a given, Jackson Hewitt's profits are not in jeopardy (small "j") -- at least for now -- as long as citizens want face-to-face help with their taxes.
The Motley Fool is investors talking to investors. Discuss H&R Block and Intuit -- and thousands of other stocks -- on The Motley Fool discussion boards. Or visit the Motley Fool Tax Center to arm yourself to fight the tax wars.
Fool contributor W.D. Crotty does not own stock in the companies mentioned.
