Clock Ticking at H&R Block

The clock is ticking on H&R Block's(HRB) 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), Accredited (LEND) and New Century (NEWC) 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."