H&R Block (HRB) Stock Closed Lower on Analyst Downgrade

NEW YORK (TheStreet) -- Shares of H&R Block (HRB) closed trading down 5.19% to $30.30 after Credit Suisse earlier downgraded the company to "neutral" from "outperform," and lowered its price target to $35 from $37.

The firm reduced their estimate of 2016 earnings per share to $1.84 from $2, and believe that the capital return opportunity is now embedded in the stock, according to the analyst note.

"We are reducing our top line growth expectations slightly, and taking a more conservative view on repurchases until the bank deal is actually approved," analysts at Credit Suisse said.

On Monday, the company announced its earnings results for the 2015 fiscal year that ended April 30 with revenue of $3.08 billion, up 1.8% from $3.02 billion in fiscal 2014.

Net income for the 12-month period fell to $473.7 million, or $1.71 per share, down from $475.2 million, or $1.72 per share a year earlier. 

H&R Block provides tax preparation and related services to the general public primarily in the U.S., Canada, and Australia.

Separately, TheStreet Ratings team rates BLOCK H & R INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate BLOCK H & R INC (HRB) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, expanding profit margins, increase in stock price during the past year and notable return on equity. We feel its strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • HRB's debt-to-equity ratio is very low at 0.28 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.44, which illustrates the ability to avoid short-term cash problems.
  • The gross profit margin for BLOCK H & R INC is rather high; currently it is at 65.60%. Regardless of HRB's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, HRB's net profit margin of 32.10% significantly outperformed against the industry.
  • BLOCK H & R INC's earnings per share declined by 19.9% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, BLOCK H & R INC reported lower earnings of $1.75 versus $1.78 in the prior year. This year, the market expects an improvement in earnings ($2.00 versus $1.75).
  • HRB, with its decline in revenue, underperformed when compared the industry average of 0.3%. Since the same quarter one year prior, revenues fell by 10.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • After a year of stock price fluctuations, the net result is that HRB's price has not changed very much. Although its weak earnings growth may have played a role in this flat result, don't lose sight of the fact that the performance of the overall market, as measured by the S&P 500 Index, was essentially similar. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • You can view the full analysis from the report here: HRB Ratings Report

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