Last week, in previewing the Thursday earnings report out from Cendant (NYSE:CD) spinoff Jackson Hewitt (NYSE:JTX), I did a little math on the tax advisor, testing fellow Fool Rick Munarriz's assertion that the company was worth its "premium valuation."

After noting that the company sports a P/E roughly 50% higher than that of its arch rival, H&R Block (NYSE:HRB), I concluded that if Hewitt can grow profits at the rate analysts project for it (20% per annum, long-term), then the company would indeed be fairly valued. One day later, Hewitt bolstered that hypothesis by releasing an earnings report boasting exactly that kind of growth -- 20% for fiscal 2006.

Mind you, getting to that level of growth in profits per share took some doing. For fiscal 2006, Hewitt grew its sales 18% year over year. Net margins contracted slightly, resulting in slower net profits growth (16%). Profits per diluted share, however, rose 20%, thanks to a 3.5% reduction in diluted shares over the past 12 months -- a trend investors can expect to continue, judging from the firm's authorization of a further $75 million in share buybacks.

If fully implemented, the buyback program could reduce shares outstanding by another 6.5%, further bolstering profits at the per-share level. And although it's true that Hewitt is currently about $60 million short of that $75 million, at last report the firm was generating just over $60 million in annual free cash flow. So it's entirely feasible for Hewitt to conduct this program if it likes. The more so because this year the firm reduced its long-term debt by $125 million, which at current rates could easily free up $5 million per annum that would otherwise be lost to interest payments.

In its subsequent conference call, management mentioned that it might delve into the debt kitty temporarily, however. Living and dying by tax season as it does, Hewitt gets most of its cash in the second half of the fiscal year. So if the price is right, and buybacks seem attractive before January 2007, the firm fully intends to draw upon its line of credit to fund those buybacks, knowing that it can make good on those debts later in the fiscal year.

Which is great for next year, but what about long-term? After all, it does investors little good if Hewitt grows 20% next year and then plays possum for the next decade. Fortunately, management sees little likelihood of that happening. Discussing its growth prospects during the conference call, Hewitt noted that a decade ago, about 50% of tax filings were done by the taxpayer; 50% by paid-filers like Hewitt. Last year, the number for paid-filers was 61%. Which shows two things: first, that the trend is toward taxpayers "outsourcing" their paperwork to firms like Hewitt; second, that there are plenty more potential clients out there.

Don't withhold this tax-related Foolishness:

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Fool contributor Rich Smith does not own shares of any company named above.