BirayNetworks Article Website

	BirayNetworks Article Website Gathering New Information about Stocks, Health, and Sports

List of Articles Stocks and Investing Stocks I Own Stock Advice Weight Loss and Fitness Sports Donate Back to Home	A Financial Analysis of H&R Block, Inc. Introduction H&R Block (HRB) is a $6.05 billion company in the personal service industry. Market capitalization competitors in this industry include Expedia, Cintas Corporation, and Service Corporation International. The personal service industry is down 15.16% over the past year compared to the S&P 500 which is up 2.37% during the same period. Over the past month, the industry has been down 2.35%, while the S&P 500 has been down 1.51%. After a strong sell-off earlier last year, there is a strong potential for personal service companies to grow. Evidence comes from a potentially strong holiday season and the willingness of consumer consumption. H&R Block's growth and valuation illustrate the potential for a strong earnings report next quarter. Business This section describes what H&R Block produces. According to Reuters, H&R Block “is a financial services company with subsidiaries providing tax, investment, mortgage, and accounting and business consulting services and products.” As all Americans are required to complete their taxes every year, there is always going to be a strong demand for tax services, especially for new users. In addition, the company’s mortgage, investment, and consulting services provide an array of products for consumers. The best business-related practice is that these services all will be required during all types of economic cycles. Therefore, as the American economy is unstable, there will still be demand for H&R’s product. Consumers will spend money for tax services, but may give up some consumption on other industries. Moreover, H&R Block has an international presence. Therefore, a weak dollar will help H&R produce more profit in future quarterly reports. More specifically, H&R Block operates in three business segments: tax services, business services, and consumer financial services. Beginning with tax services, H&R Block helps consumers and businesses with “tax preparation services.” Revenues come from services fees, royalties, and preparation software. Aid is available both online and at onsite locations, which includes certain retail companies. Approximately 67% of all the company’s sales come from this business segment. The next segment, business services, focuses more on a wider selection of business options. These business options include accounting, wealth management, and capital market services. Approximately 23% of H&R’s sales come from this segment. Therefore, the remaining 10% of sales come from the last segment: consumer financial services. In this segment, the firm acts as a brokerage through its subsidiaries. The firm offers the benefits of online accounts, equity research, and asset allocated portfolios. Therefore, the combined financial services of H&R Block equates to a strong company amalgamation. Growth H&R Block has a strong growth history. In the past fiscal year, the company reported, according to Reuters, a revenue figure near $6.05 billion. This number is second highest in the industry and also 9.59% higher than what the company produced last fiscal year. Some investors may question the slow growth compared to the industry’s average at 15.33%. However, there are many companies in the industry and a growth rate this high, especially for a financial company last year, is solid. The same logic applies for the company’s earnings growth of 36.6%. This number was significantly higher than the industry’s growth rate of 23.05%. In addition, both growth and earnings growth were higher than respective industry and market-cap competitors. Cintas only reported sales growth of 6.72% and earnings growth of 2.25%. Moreover, Service Corp reported earnings growth in negative territory as 3.81% last fiscal year. Therefore, there should be optimism from investors regarding yearly growth. However, investors soon realize about the company’s disappointing margins last year. Last fiscal year, the company reported gross, operating, and net profit margins of 33.56%, 14.99%, and 8.96% respectively, according to Reuters. These figures are all below the company’s respective five year averages of 40.98%, 20.86%, and 11.59%. However, there is future optimism regarding precedence for H&R Block. The company’s five year averages are great compared to the industry’s respective five year numbers. For example the industry’s five year average operating and net profit margins are 16.31% and 9.21%. Therefore, H&R Block is making 12 cents a dollar for every revenue dollar earned while the industry is only making 9 cents for the same amount—a 33% difference. Moreover, compared to market-rivals like Cintas (respective five year margins of 42.39%, 14.98%, and 9.39%) or Service Corp (17.02%, 8.00%, and 2.12%), H&R Block is doing fairly well. Therefore, if trends and history are any indication, H&R Block’s margins should reach appropriate levels in the future, potentially boosting the company’s share price in return. Moving to the last metric of growth, return on equity, H&R Block is doing outstanding. The past fiscal year, H&R reported an ROE of 33.80%. This number was significantly higher than the company’s five year average of 24.22%. The number was also higher than the industry average of 15.69%. As ROE measures the earnings per shareholder equity, higher earnings illustrate that the company is generating more profit for its shareholders at a great rate. Compared to other industry competitors, the overhyped Expedia only supports a 5.60% ROE, Cintas has a 15.60% figure, and Service Corp’s number is 4.63%. Therefore, there is even more optimism for H&R Block regarding growth. Valuation With such a high ROE and growth figures, investors may figure that the company’s valuation may be overvalued. However, this assumption is not the case. According to Reuters, the industry P/E average is 25.77 and the respective price to sales average is 2.28. H&R Block sees a forward P/E ratio of 14.35 and a forward price to sales ratio of 1.40—undervalued numbers compared to the industry. In addition, H&R’s numbers are also below industry competitors. Service Corp’s respective figures are 27.04 and 1.76, while Expedia supports a 25.01 and 3.62 combination. More specific to growth, H&R Block’s PEG ratio of 1.22 is relatively low compared to these industry rivals as well. Service Corp (2.40), Expedia (1.80), and Cintas (1.24) all have higher ratios compared to H&R Block. Therefore, using the aforementioned information, H&R block is undervalued compared to the expected growth it will see in the future, making this stock an attractive buy for investors. Efficiency H&R Block is efficient. The company's receivable turnover of 4.56 is respectable compared to the industry’s average. H&R manages to collect cash from consumers every 80 days. Moreover, asset turnover is also strong at 0.62. In terms of liquidation, H&R’s current ratio is 1.03—a good number related to debt and equity purchases. This statistic coincides with the company’s low debt to equity ratio of 3.94. Some investors may question low debt financing considering recently low growth, but high equity percentages have been beneficial to the company before and probably will be beneficial to the company in the future. Moreover, H&R Block’s dividend yield of 3.06% is much higher than the industry’s average of 1.88%. This yield is also higher than Service Corp’s, Expedia’s, and Cintas’s dividend yield, in which Cintas supports no dividend. In addition, institutions own 95.00% of all H&R Block shares. Since the institutional investors have a larger gross amount of capital to lose compared to the retail investor, a high institutional percentage illustrates confidence in the stock's ability. Technical Analysis H&R Block has not performed well in 2007. The company’s share price has dropped 19.83% year-to-date. However, the low amount has some positive implications. There seems to be some support at the 18 dollar share price range dating back to 2003. The last time H&R Block reached this amount the company rebounded and appreciated 80%. There is a possibility a similar situation could occur in the future. More specific to the current month, H&R Block illustrates strong technical signals. The 50 day SMA and 50 day EMA have converged after the $19 mark, signaling a support level. Parabolic SAR did recently fall below the market price, but a potential outbreak will boast the SAR upwards, as that’s where it’s trending. The company is a little undervalued compared to the RSI index at 46.21, but it is better to be an advocate of fundamental valuations before technical valuations. Therefore, while now isn't the most ideal time to purchase shares of H&R Block according to technical analysis, purchasing shares will still produce strong long terms gains. Conclusion H&R Block is a great acquisition for any portfolio. The company's business model and fundamental analysis are both strong. It is very rare to find a company that has both strong valuation and growth, so it is wise to take advantage of these situations as they arise. -Dennis Biray January 4th, 2008 ©2008 BirayNetworks. All Rights Reserved

List of
Articles

Stocks and Investing

Stocks I Own

Stock Advice

Weight Loss and Fitness

Sports

Donate

Back to Home

A Financial Analysis of H&R Block, Inc.

Introduction

H&R Block (HRB) is a $6.05 billion company in the personal service industry. Market capitalization competitors in this industry include Expedia, Cintas Corporation, and Service Corporation International. The personal service industry is down 15.16% over the past year compared to the S&P 500 which is up 2.37% during the same period. Over the past month, the industry has been down 2.35%, while the S&P 500 has been down 1.51%. After a strong sell-off earlier last year, there is a strong potential for personal service companies to grow. Evidence comes from a potentially strong holiday season and the willingness of consumer consumption. H&R Block's growth and valuation illustrate the potential for a strong earnings report next quarter.

Business

This section describes what H&R Block produces. According to Reuters, H&R Block “is a financial services company with subsidiaries providing tax, investment, mortgage, and accounting and business consulting services and products.” As all Americans are required to complete their taxes every year, there is always going to be a strong demand for tax services, especially for new users. In addition, the company’s mortgage, investment, and consulting services provide an array of products for consumers. The best business-related practice is that these services all will be required during all types of economic cycles. Therefore, as the American economy is unstable, there will still be demand for H&R’s product. Consumers will spend money for tax services, but may give up some consumption on other industries. Moreover, H&R Block has an international presence. Therefore, a weak dollar will help H&R produce more profit in future quarterly reports.

More specifically, H&R Block operates in three business segments: tax services, business services, and consumer financial services. Beginning with tax services, H&R Block helps consumers and businesses with “tax preparation services.” Revenues come from services fees, royalties, and preparation software. Aid is available both online and at onsite locations, which includes certain retail companies. Approximately 67% of all the company’s sales come from this business segment.

The next segment, business services, focuses more on a wider selection of business options. These business options include accounting, wealth management, and capital market services. Approximately 23% of H&R’s sales come from this segment. Therefore, the remaining 10% of sales come from the last segment: consumer financial services. In this segment, the firm acts as a brokerage through its subsidiaries. The firm offers the benefits of online accounts, equity research, and asset allocated portfolios. Therefore, the combined financial services of H&R Block equates to a strong company amalgamation.

Growth

H&R Block has a strong growth history. In the past fiscal year, the company reported, according to Reuters, a revenue figure near $6.05 billion. This number is second highest in the industry and also 9.59% higher than what the company produced last fiscal year. Some investors may question the slow growth compared to the industry’s average at 15.33%. However, there are many companies in the industry and a growth rate this high, especially for a financial company last year, is solid. The same logic applies for the company’s earnings growth of 36.6%. This number was significantly higher than the industry’s growth rate of 23.05%. In addition, both growth and earnings growth were higher than respective industry and market-cap competitors. Cintas only reported sales growth of 6.72% and earnings growth of 2.25%. Moreover, Service Corp reported earnings growth in negative territory as 3.81% last fiscal year. Therefore, there should be optimism from investors regarding yearly growth.

However, investors soon realize about the company’s disappointing margins last year. Last fiscal year, the company reported gross, operating, and net profit margins of 33.56%, 14.99%, and 8.96% respectively, according to Reuters. These figures are all below the company’s respective five year averages of 40.98%, 20.86%, and 11.59%. However, there is future optimism regarding precedence for H&R Block. The company’s five year averages are great compared to the industry’s respective five year numbers. For example the industry’s five year average operating and net profit margins are 16.31% and 9.21%. Therefore, H&R Block is making 12 cents a dollar for every revenue dollar earned while the industry is only making 9 cents for the same amount—a 33% difference. Moreover, compared to market-rivals like Cintas (respective five year margins of 42.39%, 14.98%, and 9.39%) or Service Corp (17.02%, 8.00%, and 2.12%), H&R Block is doing fairly well. Therefore, if trends and history are any indication, H&R Block’s margins should reach appropriate levels in the future, potentially boosting the company’s share price in return.

Moving to the last metric of growth, return on equity, H&R Block is doing outstanding. The past fiscal year, H&R reported an ROE of 33.80%. This number was significantly higher than the company’s five year average of 24.22%. The number was also higher than the industry average of 15.69%. As ROE measures the earnings per shareholder equity, higher earnings illustrate that the company is generating more profit for its shareholders at a great rate. Compared to other industry competitors, the overhyped Expedia only supports a 5.60% ROE, Cintas has a 15.60% figure, and Service Corp’s number is 4.63%. Therefore, there is even more optimism for H&R Block regarding growth.

Valuation

With such a high ROE and growth figures, investors may figure that the company’s valuation may be overvalued. However, this assumption is not the case. According to Reuters, the industry P/E average is 25.77 and the respective price to sales average is 2.28. H&R Block sees a forward P/E ratio of 14.35 and a forward price to sales ratio of 1.40—undervalued numbers compared to the industry. In addition, H&R’s numbers are also below industry competitors. Service Corp’s respective figures are 27.04 and 1.76, while Expedia supports a 25.01 and 3.62 combination. More specific to growth, H&R Block’s PEG ratio of 1.22 is relatively low compared to these industry rivals as well. Service Corp (2.40), Expedia (1.80), and Cintas (1.24) all have higher ratios compared to H&R Block. Therefore, using the aforementioned information, H&R block is undervalued compared to the expected growth it will see in the future, making this stock an attractive buy for investors.

Efficiency

H&R Block is efficient. The company's receivable turnover of 4.56 is respectable compared to the industry’s average. H&R manages to collect cash from consumers every 80 days. Moreover, asset turnover is also strong at 0.62. In terms of liquidation, H&R’s current ratio is 1.03—a good number related to debt and equity purchases. This statistic coincides with the company’s low debt to equity ratio of 3.94. Some investors may question low debt financing considering recently low growth, but high equity percentages have been beneficial to the company before and probably will be beneficial to the company in the future.

Moreover, H&R Block’s dividend yield of 3.06% is much higher than the industry’s average of 1.88%. This yield is also higher than Service Corp’s, Expedia’s, and Cintas’s dividend yield, in which Cintas supports no dividend. In addition, institutions own 95.00% of all H&R Block shares. Since the institutional investors have a larger gross amount of capital to lose compared to the retail investor, a high institutional percentage illustrates confidence in the stock's ability.

Technical Analysis

H&R Block has not performed well in 2007. The company’s share price has dropped 19.83% year-to-date. However, the low amount has some positive implications. There seems to be some support at the 18 dollar share price range dating back to 2003. The last time H&R Block reached this amount the company rebounded and appreciated 80%. There is a possibility a similar situation could occur in the future.

More specific to the current month, H&R Block illustrates strong technical signals. The 50 day SMA and 50 day EMA have converged after the $19 mark, signaling a support level. Parabolic SAR did recently fall below the market price, but a potential outbreak will boast the SAR upwards, as that’s where it’s trending. The company is a little undervalued compared to the RSI index at 46.21, but it is better to be an advocate of fundamental valuations before technical valuations. Therefore, while now isn't the most ideal time to purchase shares of H&R Block according to technical analysis, purchasing shares will still produce strong long terms gains.

Conclusion

H&R Block is a great acquisition for any portfolio. The company's business model and fundamental analysis are both strong. It is very rare to find a company that has both strong valuation and growth, so it is wise to take advantage of these situations as they arise.

-Dennis Biray
January 4th, 2008