Sell-Side Lukewarm On H&R Block Early In Turnaround

Tax preparer H&R Block Inc. (NYSE: HRB) reported earnings and revenue beats Tuesday, but sell-side analysts remained cautious, saying it’s early in the company’s turnaround process as it deals with a shift toward do-it-yourself filing.

HRB beat fourth-quarter expectations — though with the help of a lower-than-expected tax rate — coming in with EPS of $4.32, ahead of the Street’s $4.25 estimate, and besting revenue forecasts.

The Analysts

BMO Capital Markets analyst Jeffrey Silber maintained a Market Perform rating and raised the target price from $26 to $27.

Oppenheimer’s Scott Schneeberger maintained a Perform rating. 

The Thesis

H&R Block, the country’s largest storefront tax preparation company, has made progress this year, gaining or maintaining share in its different types of tax preparations businesses, despite industry-wide trends toward more DIY tax filing, analysts said.

“While a revised strategy could spur a turnaround, it will likely take some time to get there,” BMO’s Silber said in a Wednesday note. 

Both Silber and Oppenheimer’s Schneeberger said H&R Block's acquisition of Wave Financial —with its small business accounting, payment and payroll business — is expensive, but could drive growth and expand the tax preparer's customer base.

“Wave appears a logical extension to HRB's core tax business, has 400,000-plus active customers and is growing its top-line, which is delivering annual revenue of around $55-60M,” Schneeberger said in a Wednesday note. H&R Block expects the deal to close around July 31.

Like Silber, Schneeberger sees positives, but said it's too early to get excited.

“Executing well, we're nonetheless maintaining our Perform early in HRB's turnaround,” the analyst said. 

Price Action

H&R Block shares were up 1.04% at $28.07 at the close Wednesday. 

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