Promising Outlook for H&R Block Stock

Tax season may be a thing of the past, but there are still plenty of reasons to be bullish on H&R Block stock as the company prepares to report its earnings this Wednesday.

At the beginning of the year, H&R Block (ticker: HRB) faced some challenges, with its shares dropping 23% by mid-May. Concerns arose over the possibility of the Internal Revenue Service offering free online tax filings and a lackluster fiscal third-quarter earnings report. However, the stock has since recovered from most of these losses and currently sits at $36.63, experiencing only a 2.4% decrease in 2023 as fears of IRS competition have diminished.

This upward trend is likely to continue, making H&R Block shares an attractive investment opportunity. Despite recent gains, the company's stock remains undervalued, trading at 8.7 times forecast earnings. This is below its five-year average of 10.2 times, suggesting a potential 17% increase in share price based on current trading levels.

H&R Block has devised several strategies to achieve this growth.

Following a price reset for its main assisted tax-preparation product five years ago, H&R Block has steadily increased its volume by implementing more transparent pricing. Now, CEO Jeff Jones has revealed plans to roll out low-single-digit price increases, further boosting revenue during tax season.

Moreover, the company has been proactive in expanding its services beyond tax season. This initiative was unveiled three years ago and has proven fruitful. Traditionally, H&R Block would face losses for nine months out of the year until tax season arrived. However, it has diversified its offerings by venturing into banking services and providing year-round payroll and tax services for small businesses. These additional revenue streams will help bolster historically weaker quarters and contribute to overall profitability.

In conclusion, despite early setbacks, H&R Block stock demonstrates considerable potential for future growth. With its competitive valuation and strategic initiatives, investors could see substantial returns in the coming months.

H&R Block Expands Its Offerings and Expects Strong Growth

In a bid to sustain its growth, H&R Block recently introduced its mobile banking platform, Spruce, in January. Spruce offers both savings and debit accounts and has already garnered 291,000 customer sign-ups and $288 million in customer deposits as of April 30. These figures demonstrate the platform's potential for success, according to the company's last quarter report.

Additionally, H&R Block's small-business platform, Wave, which was acquired in 2019 to enhance year-round accounting services, experienced a 10% increase in revenue compared to the previous year. These strategies collectively position H&R Block to achieve its annual revenue growth target, which falls within the range of 3% to 6%.

When H&R Block reports its earnings, it will have an opportunity to showcase its commitment to meeting these growth targets. Analysts predict the company will demonstrate a profit of $1.88 per share on sales amounting to $1 billion. This corresponds to a significant 31% profit increase and a slight decline of 3.5% in sales. Furthermore, potential earnings from stock buybacks could further bolster H&R Block's financial performance. The company has already repurchased $350 million worth of stock during the first half of the fiscal year and has retired approximately 25% of its outstanding shares over the last five years. However, H&R Block emphasizes that it exercises caution when deciding on stock buybacks, opting for an "opportunistic" approach.

While there are still competitive threats on the horizon, H&R Block appears well-equipped to address them. Although the Internal Revenue Service (IRS) may introduce a filing service, it is highly unlikely that the agency will venture into tax preparation or provide advice to users. H&R Block has also formed a partnership with Microsoft (MSFT) in May to leverage its Azure OpenAI services for consumer tax preparation.

All of these developments should provide H&R Block with enough stability until the next tax season and beyond.