Tax season was good to filing assistant and Motley Fool Inside Value pick Intuit (NASDAQ:INTU) earlier this month. Tomorrow, we'll hear from one of its competitors, Jackson Hewitt (NYSE:JTX), which reports fiscal Q4 and full-year 2006 numbers before market-open. Will Hewitt imitate its rival from the Nasdaq, or follow the lead of fellow NYSE denizen H&R Block (NYSE:HRB), which analysts expect to stumble next month? A few hours more will tell us the tale.
What analysts say:
- Buy, sell, or waffle? Eight analysts follow Jackson Hewitt, with five of them rating the stock a buy and three a hold.
- Revenues. Tomorrow, they'll be looking for a 14% sales increase, to $163 million.
- Earnings. They also expect profits to rise just shy of that rate, up 12% to $1.62 per share.
What management says:
If you depend on companies filing important news releases with the SEC to keep you apprised of their goings-on, then you might think there's been little of any importance said by Jackson Hewitt since the last earnings release. You'd be wrong.
My eagle-eyed Foolish compadre Rick Munarriz spotted a press release put out by the company -- but not filed with the SEC -- earlier this month. In it, the company upped its earnings guidance for the results that will be reported tomorrow. Read all about it here; the upshot is that Jackson Hewitt's business boomed last quarter, and the company expects to report as much as $1.59 per share tomorrow. (Note that analyst estimates are a bit higher than that, most likely because the analysts are quoting pro forma numbers that exclude a $0.03-per-share charge to earnings, resulting from Jackson Hewitt modifying the terms of an agreement under which Santa Barbara Bank & Trust provides services to its clients.)
What management does:
Even as revenues rise, margins are expanding at Jackson Hewitt. Breaking a string of three consecutive declining-gross-margin quarters, Jackson Hewitt achieved a sequential 200-basis-point improvement in its rolling gross margin last quarter. Overall, at last report, rolling gross, operating, and net margins were all significantly higher than they were 18 months ago.
|
Margins % |
10/04 |
1/05 |
4/05 |
7/05 |
10/05 |
1/06 |
|---|---|---|---|---|---|---|
|
Gross |
54 |
56.1 |
55.6 |
54.7 |
54.7 |
56.7 |
|
Op. |
35 |
37.8 |
37.3 |
37.9 |
37.2 |
38.6 |
|
Net |
20 |
21.5 |
21.5 |
21 |
20.6 |
21.5 |
One Fool says:
In his article on Jackson Hewitt earlier this month, Rick Munarriz noted, "Investors have to pay a valuation premium to buy Jackson Hewitt over H&R Block, but if the past has been any indication, it's the kind of driven pedigree that's worth paying up for." Just how much of a premium is Jackson Hewitt commanding these days?
Answer: Roughly 50%, on a P/E basis. Jackson Hewitt's trailing P/E comes in at 22, versus just 14 for H&R Block. Is that a fair price to pay, though? I have to agree with Rick that it is. Jackson Hewitt's profit margin of 22% is twice what H&R Block achieves. And if the analysts know what they're talking about, Jackson Hewitt will grow those outsized profits at a rate of 20% per annum over the next five years, versus H&R Block's mere 12% growth rate.
In the final analysis, however, both firms look close to fairly priced, with each company's PEG working out to about 1. And with the broader S&P 500 trading for a PEG of 1.5, my guess is that an investment in either tax advisor will beat the market at today's prices. Investors in Jackson Hewitt should plan on hearing more solid news tomorrow.
|
Competitors |
Partners |
|---|---|
|
Intuit |
Sears (NASDAQ:SHLD) |
|
H&R Block |
Simon Property (NYSE:SPG) |
|
Wal-Mart (NYSE:WMT) |
Intuit and Wal-Mart are Motley Fool Inside Value picks. To discover more stocks that will fatten your portfolio without taxing your budget, sign up for a free 30-day guest pass.
Fool contributor Rich Smith does not own shares of any company named above.
