H&R BLOCK INC. $17 (New York symbol HRB; Conservative Growth Portfolio, Finance sector; Shares outstanding: 329.2 million; Market cap: $5.6 billion; Price-to-sales ratio: 1.4; Dividend yield: 3.5%; WSSF Rating: Above Average) is the world’s largest provider of income-tax-preparation services. It also provides accounting services to businesses, as well as banking services to consumers.
The slow economy and high unemployment are prompting more tax filers to turn to tax-preparation software or free online-processing services. That’s cutting into revenue at H&R Block’s traditional tax-preparation business. As well, the weak economy is hurting demand for its accounting services from businesses.
As a result, H&R Block’s revenue fell 5.9%, to $934.9 million, in the three months ended January 31, 2010. Its revenue was $993.4 million a year earlier. Earnings fell 19.8%, to $53.6 million, or $0.16 a share, from $66.8 million, or $0.20 a share.
The company is improving its customer service. That should help it hang onto its current clients. It is also spending more on marketing to attract new clients. Despite these moves, H&R Block will probably prepare 2% fewer returns in the current tax season. However, the tax code continues to grow more complex. That should let it keep raising its fees.
The stock trades at 11.9 times the $1.43 a share that H&R Block is likely to earn in fiscal 2010.
H&R Block is a hold.
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