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

terrible business model

OOMC will continue to bring them down.

Too many risks.

Until the spinoff of their mortgage business takes full effect and they become a takeover candidate they are likely heading below their 52 week

Block is having some difficulty in attracting preparers and much of its workforce is nearing retirement.

Recently HSBC Finance Corporation had announced that its intention of discontinuing its tax refund anticipation loans (RALS) to consumers before W-2s are released. HRB has got into a tie up with the same that would offer its customers pretax season loans against their anticipated tax refund charging a fee. Though this would not affect the current year earnings for HRB it is really a cause of concern and has work out a solution in the coming months. Apart from this the U.S. House of Representatives Ways and Means Committee have passed a bill relating to RALS considering them predatory due to the excessive fees charged. Though it is under review not much clarity is available and would be taken up in the next few months.

The revenue mix of HRB is more skewed towards tax services accounting for more than half of the total earnings. Mortgage and business services account for 25% and 18% of the revenues with the remaining accounted by the investment and corporate services. Latest developments would be the sale of Option One Mortgage due to the changing dynamic of the sub-prime mortgage environment, declining volumes and adverse interest scenario. The deal was closed at a purchase price less than the book value and the company expects to report a net loss on a consolidated basis for 2007 arising out the charges associated with the business.

However the morale of employees looks good in an upbeat mood with the technology team stealing the limelight owing to the automation process. HRB is operating in a regulated and competitive environment with competitors like JTX, being framed for illegal practices. Even HRB is facing a new lawsuit filed by Intuit apart from settling the 1998 class action lawsuit that resulted in a huge cash outflow. Though the company has good growth prospects it has huge risk attached to it, considering it better to avoid for the time being.

I always have a very negative view on a company that can not deliver on its core competency. I work customer service for a large 401(k) provider and nothing has been more frustrating this tax season than calls from our customers who are preparing their taxes at H&R Block or with H&R block software. There is a glitch in the system when it comes to people who have taken a withdrawal of after tax money from a 401(k) plan. H&R Block's systems and software still try to charge ordinary income tax and the 10% early withdrawal penalty on these types of distributions even when the customer inputs the correct data from their 1099R form ($0 taxable amount). I guess it isn't bad enough that H&R block can't even get their own accounting correct, so now they are trying to hand the IRS more money from individual taxpayers who do not raise the red flag when they see this computation.

subprime debacle

4

Bufft has reduced his stake in HR.

Nonprime loans are beginning to default in many areas as people home owners begin to realize the house they bought is not what they can afford. Sounds like a similar story with US credit card debt. Keeping up with the Jones' will sink many.
But i digress...

A good short for 1 yr unless HR dumps sells the nonprime lending business. But who would want it right now?

underprime mortgages are going to be a problem going forward

fess up coming

No comment really... Just a hunch

lots of trouble brewing, and they've run afoul of the US govt.

growing in the financial sector with new products and has an established position in the tax industry which will help it expand into new financial territiory

Subprime mortgage problems just beginning. Brutal competition emerging in tax services.

Successful turnaround ahead as the company will focus on his tax business.

with an aging population not into technology and the younger future taxpayers who are growing up WITH technology, tax preparation business will dry up.