Jackson Hewitt Tax Service, Inc. (NASDAQOTH:JHTXQ)

CAPS Rating: 3 out of 5

The Company provides computerized preparation of federal, state and local individual income tax returns in the United States through a nationwide network of franchised and company-owned offices operating under the brand name.

Recs

3
Player Avatar DannyNOLA (< 20) Submitted: 12/28/2010 2:06:38 AM : Outperform Start Price: $1.04 JHTXQ Score: -163.13

Risky stock because of its high debt that needs to be rolled over before 2011 year end.I bought some at $5-6..doubled down to about $2.5/share and just bought some calls...small bet, hoping for a big payoff :)

Positives:
-RAL financing available 100% for 2011 - this is HUGE for them right now
-H&R Block LOST some RAL financing so JTX should be able to steal some market share in the lower AGI bracket
-Walmart locations are picking up - JTX had 1200 WMT locations in 2009 and 1770 in 2010. By my calculations, the returns per WMT location in 2009 were 237 and 243 in 2010. The increase was very small because they didn't have a lot of RAL financing in 2009. I expect that number to be a lot better in 2010
-OK, this one could be a bit more far fetched and further down the road...immigration - sooner or later the mess with all of the illegal immigrants in the US needs to be fixed. One of the conditions that needs to be met to become legal will have to do with filing current and back taxes for probably the past couple of years. Filing back taxes using Turbotax is not that easy (or at least it wasn't easy for me) and I actually personally used JTX to file taxes for a previous year. I was reading in a Spanish language newspaper two years ago that was urging its readers to pay their taxes. This is how I actually got interested in JTX since it caters to people in the lower income bracket and WMT locations should do well for them.

Negatives:
-too much debt - personally I tried to avoid highly leveraged companies
-no margin of safety - if company goes bankrupt nothing will be left for the equity holders - currently it has negative book value with still a lot of goodwill on the books
-RALs have bad rep and there is some regulatory risk
-25% of franchises are up for re-negotiation and JTX might have to offer sweeter deals to the franchisees

Member Avatar DannyNOLA (< 20) Submitted: 12/28/2010 2:54:54 AM
Recs: 0

I forgot to include another positive information about JTX to my list - "Newly enacted regulations passed in response to industry demand for higher professional standards under I.R.C. Code Section 6109 require all compensated tax return preparers and those who assist in preparing all or substantially all of a tax return after December 31, 2010 to pass a tax preparer examination and apply for a Personal Tax Identification number (PTIN), which is to be used as the sole identification number for any tax returns prepared by a tax return preparer." (from 2010 JTX 10-K). The tax preparation industry is highly fragmented so this will take care of taking out of some schmucks.

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