H&R Block, Inc. (NYSE:HRB)

CAPS Rating: 3 out of 5

A financial services company, which provides tax, investment, mortgage, and accounting and business consulting services and products.


Player Avatar truthisntstupid (93.47) Submitted: 12/29/2010 6:04:01 PM : Outperform Start Price: $11.48 HRB Score: +134.99

Sometimes something will just simply jump out at me as incredibly stupid. Do people think the economy will NEVER get better? So while business is in the crapper and things are slow, H&R Block probably won't see any growth anytime soon. But business is unlikely to slump much further, and look at this!
While H&R Block may not see any growth in the near future, it still generates an impressive amount of free cash flow, having generated $1B of free cash flow in the last two years. So what's HRB doing with all this money?
While business is slow and shares are trading at levels last seen in 2002, management has decided to put that cash to use on share buybacks. Share count has fallen by 10% in the last year, and HRB plans on taking another chunk of the share count out of public hands next year. And unlike the usual case with buybacks, they're doing this at rock-bottom prices!
So when the economy finally picks back up and business resumes more normal levels, even if it's a couple years, HRB is setting the table for a real jump in earnings - and since jacking that dividend up another notch or two won't be quite as expensive with less shares outstanding, I would hope for an above-normal dividend increase when it comes to pass.
Read more about this here:


By the way, I've discovered that for some reason, when I add a pitch later, the links drop out, but come back after clicking on "reply," so whether I have anything to add or not, I'll add some sort of trivial comment in the "reply" section following this pitch. Click on it and look back up at the pitch and the links will be there.

I believe this to be a great opportunity to grab a dividend that is over 5% at its current price of $11.76 as of today's close. Not only is it safe, with only a 42% payout ratio, but will be poised to grow faster than it has in years.
According to dividendinvestor.com, this dividend has grown for 12 consecutive years, with a 3-year dividend growth rate of 2.66% and a 5-year dividend growth rate of 5.1%.
Dividendinvestor.com gives it 4 stars.

S&P's The Outlook gives it 4 stars as well.

Morningstar.com also gives it a 4-star rating. Consensus analysts' rating as shown at Morningstar (9 analysts) is 1.7, with a rating of "1" being their strongest "buy" rating.
Its PEG is less than 1, at 0.7.
Its P/E is 7.5, with a forward P/E of 6.7.
Here are some profitability metrics for both 2009 and the trailing 12 months:
2009 Net Margin................................11.89%
TTM Net Margin.................................12.96%

2009 Gross Margin.............................36.42%
TTM Gross Margin..............................37.17%

2009 Return On Assets....................... 8.84%
TTM Return On Assets........................10.82%

2009 Return On Equity.........................40.58%
TTM Return On Equity..........................51.44%

Shares Outstanding, 2009....................335M
Shares Outstanding, TTM.....................322M

CAPS gives it 2 Stars? YOU buy that if you want to. Makes no sense to me. Of course CAPS ratings are heavily influenced by people who aren't even into picking stocks...

On our CAPS "ratios" page, the 5-year average dividend yield is shown to be 2.9%. Contrast that with 5.1% as of close of business today (12/29/2010).

Here's part of "Morningstar's Take:

"Despite the commoditylike nature of this service, H&R Block has built a narrow economic moat, in our opinion. Its vast network of offices, scale advantages, market-leading position, wide array of financial products, and low incremental investment requirements give H&R Block solid competitive advantages. However, declining market share and eroding pricing power have challenged the firm during the last several tax seasons."

One last thought. GO to the link below (if the link disappears, as I think it will, clicking on "reply" has been making it come back for some reason.) Now, at Morningstar.com enter the ticker for HRB. Now click on "Valuation." Go down to the bottom of the page. Look at the different valuation metrics shown (P/E, P/B, P/S, P/CF). It shows 10 years worth of all of these.

Kinda ridiculous...don't you think?

Report this Post 2 Replies
Member Avatar truthisntstupid (93.47) Submitted: 12/29/2010 8:12:32 PM
Recs: 0

Well, it's been two hours if not more since I posted a comment in this "reply" area. No sign of it in existence, now watch it show up after I post this one. Anyway, now that you can read this, I bet the links are there above, too.

Member Avatar truthisntstupid (93.47) Submitted: 8/25/2011 12:48:14 AM
Recs: 0

Well, the date I wrote this pitch was 12/29/2010.
The price at the close of 12/29/2010, at $11.76, struck me as ridiculous.

I suppose the price the day I made HRB a CAPS pick on 12/14/2010, struck me as ridiculous as well. My original start price for HRB on 12/14/2010 was $13.29. Not quite as ridiculous as it was 15 days later.

Looking over HRB now, I see a couple bear pitches in the commentary section, one of which speaks of this company "hiding a ton of debt on its balance sheet from the pre-recession, mortgage glory days."

Hmm. So let's check in with YahooFinance and look at it, shall we?

Ah...here we are. Total debt is $1.12B.

Total shares outstanding = 305.38M. So total debt/share is $3.67.

Well...total CASH/share is $5.49.

YOU worry about the debt.

How about that P/E for the TTM of 10.98 versus a forward P/E of 8.20? And the PEG ratio of 0.86?

Dividend yield is one of my favorite value metrics, since I am a dividend investor. As a matter of fact, it IS my favorite value metric. It bears an inverse relationship to P/E.

The 5-year average dividend yield is 3.20%.
The current dividend yield is 4.18%.

It's still a good value today, offering a secure dividend at a significantly higher yield than its past average.

And while some other folks claim HRB "can't compete", Morningstar.com, the "moat" people, beg to differ. I think I'll go with the Morningstar.com people.

According to Morningstar, the consensus of 9 analysts rate HRB "1.7."

Nope. No reason to close this one.

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