shares may be due for a bounce, if credit trends have anything to say about it.
The tax preparer, which last year sold off its
business to investor Wilbur Ross and its financial advisory unit to former
, reached a new eight-year low of $13.73 earlier this month. However, credit default swaps, which insure against a default by the company, have been getting cheaper, according to a research report from Tradition Asiel Securities. That suggests the credit markets see H&R Block as less likely to default on its debt.
"Typically these type of CDS-stock disconnects are not sustainable indefinitely," the report states. "We expect the stock market to show more confidence in
H&R Block, re-rating the stock higher once the credit positives are fully discounted in to the stock. Further current
H&R Block valuation of 9.5x earnings look little hindrance to stock upside."
Technicals aside, investors considering
will have to reckon with the fact that more people are using do-it-yourself software to save money on taxes. While the downturn has probably accelerated this trend, it is logical to assume that once people have figured out how to avoid a big tax preparation fee, they will not be eager to cough it up again even if their paychecks get fatter.