10 Cheap and High-Quality Stocks Picked by Former SAC Capital Analyst

7. H&R Block, Inc. (NYSE:HRB)

Number of Hedge Fund Holders: 26

Prevatt Capital’s Stake: $22,590,600   

H&R Block, Inc. (NYSE:HRB) is seventh on our list of top stock picks of Prevatt Capital. The firm provides assisted income tax return preparation and tax return preparation services to the general public. In early May, H&R Block, Inc. (NYSE:HRB) posted earnings for the third quarter of 2024, reporting earnings per share of $4.94. The revenue over the period was $2.2 billion, up 4% compared to the revenue over the same period last year. The firm derives value from stable revenues, a strong dividend yield, and efficient equity utilization, despite having a somewhat higher leverage.

The following metrics reflect the wide competitive moat of the firm. H&R Block, Inc. (NYSE:HRB) has a Price-to-Earnings (PE) ratio of around 12, lower than the industry average and highlighting the undervalued nature of the stock. It has an unblemished payout history and offers a strong dividend yield of 3.6%, making the stock attractive for investors who value passive income. Despite a high debt-to-equity ratio, the stable cash flows of the firm suggest it can manage to bring this ratio down in the coming months. H&R Block, Inc. (NYSE:HRB) prepares around 12 million tax returns annually in the US, 6 million of which are online.

In its Q3 2023 investor letter, Artisan Partners, an asset management firm, highlighted a few stocks and H&R Block, Inc. (NYSE:HRB) was one of them. Here is what the fund said:

“In the consumer discretionary sector, tax preparer H&R Block, Inc. (NYSE:HRB) was a winner. Revenues contracted in the recent quarter but were better than expected, sending shares higher. Revenue growth was held back by lighter US industry tax filing volumes during the 2023 tax season, due in part to a year-over-year normalization of stimulus filers, in addition to market share losses in the assisted category. Some share losses are due to competition, but also a factor is a continued shift among filers to HRB’s cheaper DIY (do-it-yourself) option. While recent growth has been disappointing, HRB remains a dominant provider in assisted tax prep, a cash cow that is a relatively predictable, non-cyclical business. Prodigious cash flow continues to be faithfully returned to shareholders via dividends and share buybacks. Further, expectations remain muted as shares trade for less than 10X FY24 earnings.”