H&R Block Inc. (HRB, Financial), the U.S. tax preparation company, released its fourth-quarter and full-year 2017 results on June 13.
For the fourth quarter, the company reported adjusted EPS of $3.76, a 20.3% increase on a year-over-year basis and beat analysts’ expectations by 23 cents. The difference between the actual EPS and forecasted EPS produced a positive surprise of 6.5%.
Source: Yahoo Finance
In addition to the positive surprise, the company's progress in its net profit from operations, annual tax season performance and do-it-yourself tax return preparation solutions will also have an impact on the stock's market value.Â
Although revenue for fiscal 2017 did not show a significant improvement on a year-over-year basis – revenue came in flat at $3.036 billion – H&R Block closed the fiscal year with a 10% increase year over year in adjusted net profit to $421 million, an 11% increase in adjusted EBITDA to $904 million and a 300 basis point increase in the EBITDA margin, which was 29.8%. These improvements were achieved thanks to a 3.5% year-over-year decline in total operating expenses.
The company attributes the decrease in total operating expenses to "lower compensation and benefits and marketing costs, along with lower bad debt expense due to more favorable collections on prior year receivables.”
For the fourth quarter of 2017, revenue came in at $2.33 billion, a 1.3% increase from one year ago. The company beat expectations on revenue by $10 million.
Bill Cobb, the president and CEO of H&R Block, commented on the financial results.
"We came into this year with a very aggressive goal to change the client trajectory," Cobb said. "With competitive promotions, impactful marketing and an improved client experience, we achieved this goal and also produced strong financial results, all during a year in which the industry experienced a decline in returns.”
The company closed the final quarter of the year with $1.01 billion in cash and securities, a 12.7% increase on a year-over-year basis, while long-term debt amounted to $1.493 billion.
H&R Block has a current ratio of 1.43, which suggests the company has adequate financial resources to meet its short-term obligations.Â
Due to a $24 million increase in interest expenses from to the issuance of a long-term debt of $1 billion in September 2015, H&R Block’s interest coverage ratio worsened by 3.18 points, from 12.44 in third-quarter 2017 to 9.26 in the fourth quarter. Even though it is lower than the industry’s median ratio of 24.39, it is still far above 1.5. This means H&R Block can easily pay interest expenses on outstanding debt.
Thanks to a substantial improvement in its financials, H&R Block has increased its quarterly dividend by 9%, from 22 cents to 24 cents. The annual distribution is 96 cents, which leads to a dividend yield of 3.56% based on the stock's current market value.
H&R Block is trading around $26.99 per share with a price-earnings (P/E) ratio of 18.14 and a price-sales (P/S) ratio of 1.86.
The forward P/E ratio is 13.63. When multiplied by the average EPS of $1.84, it gives us a value of $25.08, which is $1.91 lower than the current market valuation.
The analysts’ average target price is $24.71 per share with a recommendation rating of 2.9 out of 5.
Disclosure: I have no positions in H&R Block.
