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H & R Block Inc (HRB) Jumps on Earnings and Buyback Plan; What Do Hedge Funds Think About the Stock?

H & R Block Inc (NYSE:HRB)’s stock opened up over 6% higher today as the company posted a slimmer loss and better-than-expected revenues for the first quarter of its fiscal 2016 ended July 31. Apart from the upbeat quarter, the tax services company also unveiled a $3.5-billion stock buyback plan and said that the deal to sell its banking business will be closed a month faster than expected.

For the first quarter, H & R Block Inc (NYSE:HRB) reported an adjusted net loss of $96 million, or $0.35 per share, and adjusted revenue of $138 million. Adjusted net loss for the same quarter in fiscal 2015 stood at $108 million, or $0.40 per share, while revenue amounted to $134 million. The results were also above analyst estimates of a loss of $0.40 per share and revenue of $136 million.

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The company’s buyback plan worth $3.5 billion will be implemented through June 2016 and will include a modified Dutch auction tender offer for as much as $1.5 billion in common stock, or 16% of the firm’s capitalization by the end of August, for between $32.25 and $37 per share. The buyback plan will definitely make more than a few of the hedge funds we track, which are long H & R Block Inc (NYSE:HRB), happy. At Insider Monkey, we follow hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of six basis points, though these stocks underperformed the S&P500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P500 Index by an average of 95 basis points per month (read more details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, and has returned 118% over the last 36 months, beating the 57.6% gains for the S&P 500 ETF (SPY). We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise rather than large-cap stocks.

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