Jackson Hewitt's FY 2007 results included a modest 6.5% growth in total revenue. During its earnings conference call, management noted that customers are filing their tax returns later than in previous years. It wasn't able to offset a slow start to the season, which culminates with the April due dates for tax returns.
Additionally, back in April, a franchisee with 125 locations was accused of filing fraudulent tax returns, which management believes contributed to flat tax-return volumes across its 6,500 offices nationwide. Jackson Hewitt quickly suspended the franchisee's operations and is investigating the matter, as are the Internal Revenue Service and the Department of Justice. Besides the obvious hit to Jackson Hewitt's reputation, the fraud accusations don't seem too serious -- they pertain to one franchisee, representing only a couple of percent of the company's locations.
Despite the fraud charges, and another April announcement that HSBC
Jackson Hewitt also throws off strong cash flow; operating cash flow has nearly doubled reported net income in the last couple of years. Fiscal 2007 cash flow details aren't available yet, but management mentioned that it "generated significant cash flow" to repurchase shares. Jackson Hewitt also just announced a 50% increase in its quarterly dividend.
Yesterday's earnings release helped calm investor concerns that near-term matters might torpedo Jackson Hewitt's profitability or growth prospects. The market is also extremely competitive, with large players such as H&R Block, online providers such as Intuit
Overall, I find that Jackson Hewitt's investment merits outweigh its drawbacks at its stock price --especially considering that taxes, as the saying goes, are one of life's few certainties.
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Fool contributor Ryan Fuhrmann is long shares of Jackson-Hewitt, but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.