Consistency, Competition Keys to H&R Block’s Future

The market cooled to H&R Block (NYSE: HRB) stock on Wednesday after the company reported its fiscal first quarter 2018 earnings. H&R Block stock plummeted more than 8 percent following the report, and Wall Street analysts believe investors’ expectations may simply be too high at the moment.

H&R Block reported an earnings-per-share loss of 62 cents, in line with consensus analyst forecasts. The company typically reports large earnings losses in quarters outside of tax season.

The good news for bulls is that H&R Block’s Q1 revenue of $138 million beat consensus estimates of $129 million, but it still wasn’t enough to keep the stock afloat.

On the surface, the strong negative market reaction to what was seemingly an uneventful quarter for the tax services company may seem puzzling. But with competition from Intuit (INTU), Credit Karma and others set to ramp up during the 2018 tax season, BTIG analyst Mark Palmer says market expectations may have crept a bit too high.

“We believe the stock’s slide showed that the expectations bar for HRB has been raised, especially with shares up more than 27 percent [year-to-date] and trading at a 14.5 times multiple that we see as reflective of the view that the company will build upon the progress it had demonstrated during [fiscal 2017],” Palmer writes in a note issued Wednesday.

Credit Suisse analyst Anjaneya Singh says H&R Block’s biggest problem is inconsistency.

“We are cautiously optimistic that management continues to find the ‘groove’ as it relates to elasticity on pricing and promotions, and believe the recent hire of Jeff Jones is a longer-term positive to the story,” Singh says. “That said, we remain wary of performance inconsistency the last few years, and need more evidence of assisted volume growth being a reality under the current pricing framework to become more constructive on the story.”

BTIG maintains…

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