H & R Block Inc (NYSE:HRB)’s stock opened up over 6% higher today as the company posted a slimmer loss and better-than-expected revenues for the first quarter of its fiscal 2016 ended July 31. Apart from the upbeat quarter, the tax services company also unveiled a $3.5-billion stock buyback plan and said that the deal to sell its banking business will be closed a month faster than expected.
For the first quarter, H & R Block Inc (NYSE:HRB) reported an adjusted net loss of $96 million, or $0.35 per share, and adjusted revenue of $138 million. Adjusted net loss for the same quarter in fiscal 2015 stood at $108 million, or $0.40 per share, while revenue amounted to $134 million. The results were also above analyst estimates of a loss of $0.40 per share and revenue of $136 million.
The company’s buyback plan worth $3.5 billion will be implemented through June 2016 and will include a modified Dutch auction tender offer for as much as $1.5 billion in common stock, or 16% of the firm’s capitalization by the end of August, for between $32.25 and $37 per share. The buyback plan will definitely make more than a few of the hedge funds we track, which are long H & R Block Inc (NYSE:HRB), happy. At Insider Monkey, we follow hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of six basis points, though these stocks underperformed the S&P500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P500 Index by an average of 95 basis points per month (read more details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, and has returned 118% over the last 36 months, beating the 57.6% gains for the S&P 500 ETF (SPY). We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise rather than large-cap stocks.
Meanwhile, according to Bill Cobb, H & R Block’s president and chief executive officer, the successful divestment of its bank business to Bofl Holding Inc. a month earlier than expected will allow the firm to focus on preparations for the upcoming tax season. Nonetheless, it should be noted that the firm expects the net financial impact of the sale to be dilutive by $0.08 to $0.10 per share per year beginning in the current fiscal year. H & R Block also expects one-time charges for the deal between $0.02 to $0.03 per share to be reflected in its annual results. However, another advantage of the closed deal is that the company will no longer be subject to savings and loan holding company regulations which lessens the firm’s required capital levels. On the back of the deal, H & R Block expects excess capital of as much as $1 billion.
These positive developments at H & R Block Inc (NYSE:HRB) appears to have been anticipated by the hedge funds we track. While the total value of holdings of hedge funds decreased by over 8% quarter-over-quarter to $926.1 million at the end of June, this is mostly explained by the 7.55% decrease of the stock during the second quarter. However, the number of funds with long positions went up to 44 versus 36 a quarter earlier. Moreover, a total of 11.30% of the firm’s stock is owned by hedge funds we track, pointing to a general bullish sentiment.
H & R Block Inc (NYSE:HRB)’s largest shareholder at the end of June, among the hedge funds we track, was First Eagle Investment Management, which owned 5.85 million shares worth approximately $173.4 million. Michael A. Price and Amos Meron’s Empyrean Capital Partners bought the largest new stake in H & R Block during the second quarter, and disclosed holding 1.65 million shares in its latest 13F, while Israel Englander’s Millenium Management increased its stake in the firm by a whopping 8,711% to some 1.25 million shares.
