Estimated read time: 2 minutes
Publication date: 24th Jun 2019 09:29 GMT+1
H&R Block Inc. (NYSE: HRB) reported earnings on June 11, 2019, and investors received the news positively. H&R Block modestly exceeded consensus estimates for earnings on revenue, with $4.31 EPS and revenue of $2.3 billion for the quarter. Both these figures are substantially lower than the prior year, which the company attributes to lower prices for tax preparation services.
H&R Block stock jumped after the company announced the acquisition of Toronto-based financial services company Wave Financial and increased its dividend by 4%. HRB is well above lows and well below highs in recent years, and strong performance within its 52 week range warrant investigation into the investment opportunity for the well known financial services company.
Financial ratio analysis of H&R Block offers little noteworthy support for bulls or bears. The company has wide margins relative to industry peers who are still struggling with macroeconomic headwinds, but they are average relative to market-wide averages. The company’s capital structure is relatively debt heavy, but liquidity ratios do not indicate solvency issues. Efficiency ratios are modestly better than average, with especially strong performance in ROA and ROE, the latter of which can be traced to capital structure.
HRB appears relatively cheap on the basis of price-to-earnings, neutrally valued relative to free cash flow, and very expensive relative to book value. These ratios will have different relevance to different investors, but there certainly is not unanimous evidence for any valuation narrative.
Analyst recommendations are appropriately split between hold and buy, and FinScreener’s rankings also reflect the unremarkable body of evidence above. Growth, value and overall ratings are all three-stars in FinScreener’s system, placing H&R Block stock firmly in neutral territory.
This data taken as a whole wouldn’t seem to indicate any compelling story, and for many investors, that certainly is not the case. It is hard to see an opportunity for HRB to outpace the market substantially to deliver alpha for holders. However, the stock’s 3.67% dividend yield is well above average seen in large caps and financial service stocks. Income-focused investors could find a great opportunity in HRB, which is a relatively stable and well-known business that can perform a specific role within a portfolio more effectively than 75% of alternatives.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
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