H&R Block, Inc. (NYSE:HRB) discussed wider losses in its Q1 2014 earnings call yesterday; the company’s plan to shed H&R Block, Inc. (NYSE:HRB) Bank is still awaiting regulatory approval. The company has joined up with GoHealth to help provide online health insurance and remain a trusted brand in the “newly created intersection of taxes and health care,” in the words of William Cobb, CEO. Is H&R Block, Inc. (NYSE:HRB) investing enough in its future growth? We analyze the company’s preliminary financial results for the quarter ended 2013-07-31 relative to its peers (scroll to the end of this post for the peer list).
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Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.
| Quarterly (USD million) | 2013-07-31 | 2013-04-30 | 2013-01-31 | 2012-10-31 | 2012-07-31 |
|---|---|---|---|---|---|
| Revenues | 127.2 | 2,200.2 | 472.0 | 137.3 | 96.5 |
| Revenue Growth % | (94.2) | 366.2 | 243.9 | 42.3 | (95.2) |
| Net Income | (113.3) | 688.6 | (17.0) | (101.2) | (105.7) |
| Net Income Growth % | (116.4) | N/A | N/A | N/A | (117.9) |
| Net Margin % | (89.1) | 31.3 | (3.6) | (73.7) | (109.5) |
| ROE % (Annualized) | (38.3) | 290.2 | (10.2) | (52.6) | (38.9) |
| ROA % (Annualized) | (10.9) | 65.0 | (1.7) | (10.8) | (10.3) |
Valuation Drivers
H&R Block, Inc. (NYSE:HRB)’s current Price/Book of 6.9 is about median in its peer group. HRB’s operating performance is higher than the median of its chosen peers (ROE of 46.9% compared to the peer median ROE of 17.4%) but the market does not seem to expect higher growth relative to peers (PE of 18.1 compared to peer median of 20.8) but simply to maintain its relatively high rates of return.
The company attempts to achieve high profit margins (currently 15.6% vs. peer median of 11.6%) through differentiated products. It currently operates with peer median asset turns of 0.8x. HRB.’s net margin is similar to last year’s high of 16.0%, which compares to a low of 11.1% in 2011.
Growth & Investment Strategy
While the company’s revenues growth has been below the peer median in the last few years (-9.1% vs. 3.1% respectively for the past three years), the market still gives the stock an about peer median PE ratio of 18.1. The market seems to see H&R Block, Inc. (NYSE:HRB) as a long-term strategic bet.
HRB’s annualized rate of change in capital of -5.2% over the past three years is less than its peer median of 9.0%. This investment has generated a peer median return on capital of 15.7% averaged over the same three years. The median return on capital investment on a relatively lower investment suggests that the company is under investing.
Trend Charts
H&R Block (HRB) Peers List
Intuit Inc. (NASDAQ:INTU), CBIZ, Inc. (NYSE:CBZ), Euro-Tax.pl S.A. (ETX-PL), JTH Holding Inc (NASDAQ:TAX) and PRGX Global Inc (NASDAQ:PRGX).
