NEW YORK (TheStreet) -- H&R Block (HRB) has been reiterated as an "outperform" stock with a $34 price target, Oppenheimer said Friday. The reiteration comes after the consumer tax agency announced it would divest its bank unit to BofI Holding (BOFI) for an undisclosed amount.
"The transaction appears solid across key measures, with the most core being the pending H&R Block Bank 'surrender' of its bank charter, which would remove a major regulatory overhang tying up capital in HRB's otherwise capital-light business. It significantly enhances future financial flexibility/potential return of capital to shareholders," analyst Scott Schneeberger wrote in a report.
The investment firm notes the partnership is a positive given BofI holding is large enough to handle anticipated seasonal surges in deposit flows from H&R's financial offerings, but not so large it encounters too many regulatory challenges from the Federal Reserve.
Schneeberger added, "HRB should benefit from BOFI's partnership in building the percentage mix of reloads HRB could potentially generate from the ~2.5M customers who take their tax refunds each year on HRB's Emerald Prepaid (debit) cards."
Oppenheimer rates BofI Holding as a "perform" stock.
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Separately, TheStreet Ratings team rates BLOCK H & R INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
"We rate BLOCK H & R INC (HRB) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its good cash flow from operations and notable return on equity. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and relatively poor performance when compared with the S&P 500 during the past year."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Net operating cash flow has increased to -$627.95 million or 15.69% when compared to the same quarter last year. In addition, BLOCK H & R INC has also vastly surpassed the industry average cash flow growth rate of -135.67%.
- HRB, with its very weak revenue results, has greatly underperformed against the industry average of 0.2%. Since the same quarter one year prior, revenues plummeted by 57.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Diversified Consumer Services industry. The net income has significantly decreased by 1112.5% when compared to the same quarter one year ago, falling from -$17.71 million to -$214.71 million.
- Currently the debt-to-equity ratio of 1.60 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. To add to this, HRB has a quick ratio of 0.54, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- You can view the full analysis from the report here: HRB Ratings Report