NEW YORK (TheStreet) -- Shares of H&R Block (HRB) are gaining in Friday's early morning trading after analysts at Piper Jaffray initiated coverage with an "overweight" rating and a price target of $38.
"We see H&R Block's transformation from a diversified financial services company into a focused tax services play as a driver of earnings growth acceleration, with the anticipated divestiture of HRB Bank serving as an intermediate-term catalyst for growth and returns," analysts said.
They added that increasing tax complexities from the Affordable Care Act, improving employment trends in the U.S. and positive execution by new management combine to create an attractive operating outlook.
However, they noted some key risks, which include cyclical exposure, heavy competition, failure to divest retail bank, regulatory risk, and integration risk.
H&R Block provides tax preparation and related services to the general public primarily in the U.S., Canada, and Australia.
TheStreet Ratings team rates BLOCK H & R INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate BLOCK H & R INC (HRB) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, notable return on equity, good cash flow from operations, compelling growth in net income and solid stock price performance. We feel its strengths outweigh the fact that the company shows low profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- HRB's very impressive revenue growth greatly exceeded the industry average of 7.3%. Since the same quarter one year prior, revenues leaped by 154.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Diversified Consumer Services industry and the overall market, BLOCK H & R INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Diversified Consumer Services industry. The net income increased by 82.8% when compared to the same quarter one year prior, rising from -$214.71 million to -$36.95 million.
- Net operating cash flow has slightly increased to -$619.62 million or 1.32% 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 -186.26%.
- Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
- You can view the full analysis from the report here: HRB Ratings Report