This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

H&R Block Finds Little Room to Grow

Stocks in this article: HRB JTX INTU

H&R Block also may pique the interest of dividend-focused investors. The current yield is a nice 3.6%, and the payout ratio is a very reasonable 40% of net income. With management re-focusing strictly on the tax prep business instead of ill-advised projects like subprime loans, there should be plenty of free cash available for the dividend to grow.

The final positive is momentum. 2010 was a poor year for the firm, with changes at CEO and CFO, the loss of refund anticipation loan (RAL) funding, and total returns falling 4%, with higher-priced retail branch filings down 6%.

So far in 2011, though, the metrics are improving. Through the first half of tax season, returns filed at branch offices were up 2.6%, and DIY filings up over 13%. This is especially impressive considering Block is unable to offer RALs anymore. The dramatic problems at Jackson-Hewitt, which could be nearing bankruptcy, have helped, as has new initiatives like filing 1040-EZ forms for free.

Despite these positives, there are still reasons to be wary of investment. Block's software offering growth has lagged badly against TurboTax in the past. Software is a much lower revenue contributor, bringing down revenue-per-filing rates.

Further hurting these rates are increased office-based competition, both from small chains like Liberty Tax Service and from "pop-up" operators and accountants nationwide, which drastically undercut Block's fees.

In the long run, this is a market share industry, with not much organic growth. Add to this the fact that the market size opportunity will decline for the foreseeable future and there is not too much to be excited about.

2011 and possibly 2012 look decent for this company, as market share stabilizes and the effects of cost cuts take hold. But given the poor long-term picture, I highly doubt that Wall Street gives back the 6% to 7% earnings yield the stock used to enjoy.

My fair value for HRB is $19, which is only about 12% of upside given the stock's current run. That's not enough to recommend it. Most of the returns have already been filed on this stock. MagicDiligence is putting the "neutral" rating on it. You can do better elsewhere.

2 of 3

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,590.21 +233.34 1.34%
S&P 500 2,039.82 +26.93 1.34%
NASDAQ 4,703.61 +59.2980 1.28%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs