H&R Block Shares Downgraded To Sell At BTIG

BTIG’s Mark Palmer believes the 9 percent rally in H & R Block Inc HRB shares since the U.S. Election Day “reflects complacency in the aftermath of the election of President-elect Donald Trump.”

Palmer downgraded the rating on the company from Neutral to Sell, with a price target of $18.

Simplification Of Tax Process

The analyst cautioned that Trump had, in August 2015, said “it would be a dream of mine to put H&R Block right out of business” with the simplification of the tax filing process to such an extent that the company’s services would no longer be in demand for tax preparation.

Although Palmer acknowledged a lot of what had been said during the campaign might not be translated into policy, with the Republicans set to take control of both Houses of Congress and the White House, “the likelihood of the enactment of legislation that would simplify tax filing in a manner that could reduce the need for HRB’s tax preparation services has increased significantly.”

The analyst also pointed out that in April 2016, Sen. Elizabeth Warren had introduced the Tax Simplification Act of 2016, which attracted Sen. Bernie Sanders as a co-sponsor, only reflecting the bipartisan appeal of such legislation.

Adverse Impact

“In particular, we believe the ‘Better Way for Tax Reform’ unveiled by Republicans on the House Ways and Means Committee last June represents a threat to HRB’s business insofar as it includes a proposal for the complex tax forms currently in use to be replaced with a postcard that has just 14 lines to fill out,” Palmer stated.

The analyst believes, at the very least, simplification of the process by the Trump administration to spur a shift to online tax filing, which would mean lower margins for H&R Block, as well as market share loss to some of its competitors.