Here's Why You Should Retain H&R Block in Your Portfolio

H&R Block, Inc. HRB is benefiting from a growing tax industry and its strong cash position that is enabling the company to pursue opportunities in potential areas.

In a year’s time, shares of the company have gained 8.2%, against the 5.2% decline of the industry it belongs to.

 

With expected long-term earnings per share growth rate of 10% and a market cap of $5.7 billion, H&R Block is a stock that investors should retain in their portfolio for now.

Factors Driving H&R Block’s Performance

A strong cash position allows H&R Block to pursue opportunities that exhibit true potential and positions it for sustainable clients, revenue and earnings growth. The company is investing in three broad areas in fiscal 2019 — price, technology and operational excellence.

On the price front, it is focusing on price reduction to attain competitive pricing. With technology, the company is building a new tax engine to consolidate multiple systems, invest in cross-channel capabilities to streamline client experience across platforms, move physical data centers to the cloud and optimize data architecture and analytics platform. With regard to operational excellence, the company is trying to improve execution of standard operating procedures for better quality and consistency of service delivery.

H&R Block, Inc. Revenue (TTM)

H&R Block, Inc. Revenue (TTM) | H&R Block, Inc. Quote

H&R Block is trying to gain from opportunities offered by the tax industry which is growing steadily in assisted and DIY channels. In the assisted business, the company is investing in price, development and delivering on a clear brand promise and enhancement of service quality. In its DIY business, H&R Block focuses on competitive pricing and investment in product innovation along with user experience improvement.

Summing Up

Despite riding on significant growth prospects, H&R Block is not free from overhangs. The company is likely to witness escalation in costs stemming from heavy investments. It faces huge litigations in connection with its various operating activities that drain resources and hamper goodwill. However, we believe that prudent initiatives will help the company achieve overall objectives of clients, revenue and earnings growth.

Zacks Rank & Stocks to Consider

Currently, H&R Block is a Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A few better-ranked stocks in the broader Zacks Business Services sector are Paychex, Inc PAYX, WEX Inc WEX and Automatic Data Processing Inc ADP, each carrying a Zacks Rank #2 (Buy). Long-term expected EPS (three to five years) growth rates for Paychex, WEX and Automatic Data Processing are 8.5%, 15% and 12.5%, respectively.

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