Clock Ticking at H&R Block

The clock is ticking on H&R Block's(HRB Quote) plan to sell its mortgage business.

The Kansas City, Mo.-based tax company has said it expects to have a decision on so-called strategic alternatives for its Option One Mortgage by the end of March. H&R Block put the unit up for sale in November, saying it hoped to get $1.3 billion.

Since then, the subprime mortgage business has fallen apart. Shares in subprime lenders such as NovaStar (NFI Quote), Accredited (LEND Quote) and New Century (NEWC Quote) have plunged as defaults and delinquencies spiked.

H&R Block has hardly been immune: Its shares are off 8% this year despite solid gains in the company's bread-and-butter tax preparation business. Yet the company remains optimistic, and so do some analysts.

Jennifer Pinnick, an analyst at Morgan Stanley, writes that expectations have fallen so far that a sale is likely to boost the tax services provider's share price.

"We think a sale price is going to be lower than expectations," she wrote in a recent note, "but higher than the zero value that the market seems to be predicting."

The market isn't expecting much because H&R Block's mortgage business has been a drag on the company.

For the quarter ended Jan. 31, H&R reported a loss of $60.3 million, or 18 cents a share. That includes a $29 million reduction in the "carrying value of residual interests in its discontinued mortgage operations."

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