H&R Block CEO Goes Out With A Beat As Q4 Results Exceed Expectations

H & R Block Inc HRB shares are surging in reaction to the strong fourth-quarter results the company released Tuesday.

BTIG noted the results would mean CEO Bill Cobb, who last month announced his departure from the company at the end of July, will bow out in style.

Analyst Mark Palmer indicated that the strong quarterly results were headlined by a 180-basis point beat in EBITDA margin relative to the company's guidance issued on April 27.However, the analyst believes the benefits bestowed by H&R Block's heavy promotional activity during the 2017 tax season may not be sustainable.

Tax Reform Could Be A Setback

BTIG believes the stock's recent rally seen since mid-February has "largely disregarded" the potential for the Trump administration and the Republican Congress to enact tax reform legislation aimed at simplification. This, according to the firm, would impact management efforts to reverse the decline in its tax preparation volumes that began five tax seasons ago.

The reform plan could reduce the need for H&R Block's tax preparation services or at least expedite the shift to online filing, an arena dominated by Intuit Inc. INTU.

That said, BTIG thinks the rally was due to the smaller-than-expected decline of 2.5 percent in tax volume during the 2017 season and the doubts concerning the likelihood of the enactment of the Trump's tax reforms.

Reiterating Sell Rating

BTIG reiterated its Sell rating on shares of H&R Block but increased its price target to $19 from $17, which is based on 9.5 times its 2018 earnings per share estimate of $2.

"The company's shares traded in the aftermarket yesterday at 15x the consensus FY18E EPS, a multiple that we view as difficult to justify given the company's modest growth profile and the potential for multiple contraction if tax simplification efforts come to fruition," BTIG said about& the valuation.

Related Links:

5 Stocks To Watch For June 14, 2017

20 Stocks Moving In Wednesday's Pre-Market Session