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

too easy

Horrible company with a failing business model. Probably won't be getting new customers and will lose a lot of existing customers due to their famous error and essentially lying about what % of people got their returns back already. They may have to hide under TaxAct to make people forget about their stained name. Next quarter's numbers should be pretty ugly compared to normal since the glitch was heard about earlier in the tax season, so they already started bleeding customers this tax season.

Probably going to be dominating it's niche for a long time to come.

Not sure how high a PE it rates because of that, but I doubt it will ever be in the single digits.

May end this pick after tax season, but that's no sure thing. Unlikely before then, however.

It will be interesting to see how much effect the end of tax season has on this.

take over

signal

Death and Taxes. Low price to it's intrinsic value.

HRB is a stagnant slow growth brick and morter company locked in mortal combat with web based tax preparers such as turbo tax. They have resorted to giving away their services for free to show even the lackluster retail return growth of the past three years. While they have a good dividend and solid cash flow management has historically proven inept at finding profitiable ways to use this capital. I don't see this stock falling much from its current level but neither do I see it outperforming the market anytime soon.

This company is hiding a ton of debt on its balance sheet from the pre-recession, mortgage glory days

I believe that the stock is undervalue. I think they are a leading tax preparer with a econic moat. Hewitt jackson just file for chapter 11 protection, so their only competition in intuit.

With the competitor Jackson H suffering, makes sense those client would look for an alternative and H&R has a large network of offices.

Betting against HRB but buying JTX

H&R Block was trading at 12.75 earlier this year.
People were dumping simply because they were not going to be able to offer RALs - refund anticipated loans. But they acquired Taxact. US tax code is so complicated that the head of IRS uses a tax proffessional. So am betting HRB with their tax proffessionals are going to do a lot of good business and in the short term this stock looks very good.

Tax Season

1. Prices were flat last year vs. previous years. Look for increases to offset loss of revenue to self-prepared returns.
2. Loss of RAL products minimized by IRS not providing debt indicator to participating lenders.
3. Increased IRS enforcement likely in the next few years, making professionally prepared returns more attractive. The same goes for health care regulations and reporting requirements.
4. Recession has disproportionately affected both the Tax Services and Business Services (RSM McGladrey). The large majority of Block's clients are in a segment of the working population suffering 15-30% unemployment, much larger than the national levels. McGladrey will enjoy increased business due to an improving economy and a more acute need for their services due to, e.g., health care regs as noted above.

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:

http://community.nasdaq.com/News/2010-12/the-best-rebound-stocks-in-the-sp.aspx?storyid=50008&source=TheMotleyFool

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?

Good Timing

went in to do taxes last year.placewas packed when i got there. same thing for 10 whole daysin a row. So, I went to another town, I repeated this for the surrounding are for a few days. Same story. Perhaps a fluke. But, I decided today, while i was printing last mongths tax papers that I would call this stock a buy. Perhaps not the strongest buy so i will add it and watch for a few years and see. good luck!

High Yield and Fair Value

hit a three year low of $11.98 last week. Trading around 8.5 P/E while industry avg is around 18! and it pays regular dividends...it looks great from both, technical and fundamental standpoint. I think this stock goes to $15 over the next three months, and perhaps back to around $20 in 9 plus months.