Thursday, April 26, 2012

H&R Block (HRB): Entering Shleifer Effect Watchlist

H&R Block (HRB) was slammed this morning after announcing a strategic realignment, using the same press release (here) to announce it also expects fiscal 2012 revenue and earnings to be in line with analyst estimates. The news was a tacit admission that its current approach of offering its services with storefronts and software is far from optimized. With a 13 percent price drop, HRB now sports a P/E around 12 and a dividend yield over five percent.  The dividend looks sustainable from current levels of operating cash flow.



My quick impressions of HRB is that it is a much despised stock with a relatively new management team attempting to escape the reputation established by their predecessors. The business also has a sullied reputation given its long association with tax refund anticipation loans (a practice akin to issuing usurious payday advance loans). Without question, it is in turnaround mode. Its business peaked in 2004 when it generated over $1 billion in operating income, but it was not able to sustain that level of earnings. Earnings have been pretty bumpy ever since. 

This appears to be the first piece of first-order bad news in some time.

Well, we're adding HRB to the Shleifer Watchlist. The next big piece of news seems to be Q4 and FY 2012 earnings announcement that is scheduled for June 26 (see the calendar here). We'll watch with anticipation and try to spend some more time with the business beforehand in case it an overreaction opportunity presents itself.

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