It was one year ago that Motley Fool Inside Value recommendation Cendant
To answer the value question, start by looking at the balance sheet. Before the spinoff, Jackson Hewitt had no debt, $5.3 million in cash, and a $144 million note due from Cendant (of which $131.9 million was the special dividend to Cendant).
Yesterday, after the market closed, Jackson Hewitt reported record revenue, higher operating margins, a cash balance of $113.3 million, rising net income for the 2005 fiscal year, and a 14% increase on the quarterly dividend to $0.08 a share. Although the company does have $175 million in debt, it has enough cash and cash flow to be considered very healthy.
Look carefully at the fourth-quarter results, in which the April 15 income tax filing deadline falls, and you will notice that net profit margin fell from 39.5% during last year's fourth quarter to 38.2% in this year's fourth quarter. While sales rose 7.7% for the quarter compared with last year, operating expenses rose 11.4% -- not a robust situation.
It is difficult to tell whether the company met analyst estimates of $1.38 a share for the quarter. The company reported $1.44 in fully diluted earnings, but this boils down to an adjusted diluted earnings of $1.35 per share because of a "refund anticipation loan" for its Santa Barbara Bank & Trust unit.
It will be easier to analyze Jackson Hewitt's results next week when industry No. 1 H&R Block
Value, of course, is based on prices. With an adjusted diluted earnings of $1.21 for fiscal year 2005 (which ended April 30), Jackson Hewitt's stock is trading for 17.9 times trailing earnings. Analysts expect the company to grow earnings 20.0% a year for the next five years, handily beating the 10.5% expectation for the S&P 500.
Add it up. This is a company with a healthy balance sheet and a price-to-earnings ratio below the expected growth rate. Taxes are not expected to get any easier to file. At current prices, the stock represents, in this observer's opinion, a good value.
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