Reasons to Retain H&R Block (HRB) Stock in Your Portfolio

H&R Block, Inc.’s HRB shares have gained 16.8% over the past three months, significantly outperforming the 4.6% rally of the industry it belongs to and 7.3% growth of the Zacks S&P 500 composite.

With a long-term expected-growth rate of 10% and a market cap of $3.1 billion, H&R Block seems to be a stock that investors should retain in their portfolios.

Factors That Auger Well

H&R Block’s business remains in good shape, driven by digital capabilities which the company increased quickly to suit its remote-working environment. As a result, strength across Tax Pro Review, Tax Pro Go, and Approve Online features are keeping the company’s top and bottom lines in good shape.

Notably, in the first quarter of fiscal 2021, the company’s adjusted EPS came in at 55 cents while it suffered a loss of 72 cents in the year-ago quarter.Revenues of $601 million increased more than 100% year over year.

The U.S. tax-preparation industry has been in good shape and we expect it to get healthier post the pandemic. We anticipate fall in unemployment and rise in disposable income to drive the industry’s growth, thereby positively impacting the demand environment for H&R Block’s services.

Strategic investments in price, technology and operational excellence are likely to help the company achieve long-term objectives of clients, revenues and earnings growth.

Some Risks

H&R Block’s total debt-to-total-capital ratio of 0.96 was higher than the industry’s 0.84 at the end of the first quarter of fiscal 2021. A high debt-to-capitalization ratio indicates that the proportion of debt to finance assets is on the rise.

Further, cash and cash equivalent balance of $2.8 billion at the end of quarter was well below the debt level of $3.5 billion, underscoring that the company doesn’t have enough cash to meet this debt burden.

Zacks Rank and Stocks to Consider

H&R Block currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader Zacks Business Services sector are BG Staffing BGSF, Charles River CRAI and Sykes Enterprises SYKE, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings- (three to five years) growth rate for BG Staffing, Charles River and Sykes Enterprise is estimated at 20%, 13% and 8%, respectively.

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With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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