For much of the past five years, tax preparation firm H&R Block (HRB) traded between $14 and $20 as investors slapped a modest P/E multiple on profits, noting the maturity of the tax prep business. Yet since the start of this year, shares have risen more than 55% as investors come to expect that the looming tax changes associated with recent health care changes will spur the need for much more tax help from firms such as H&R Block.
Analysts at Morgan Stanley question whether the Affordable Care Act will really deliver the upside that these shares seem to already reflect. And they think that even with a modest bump from ACA, per-share profits are likely to rise just 10% to 12% in fiscal (April) 2014 and 2015.
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