H&R Block, Inc. (HRB): There Are Better Ways To Play Tax Preparation

One of the most well-known tax preparation service providers in the United States, H&R Block, Inc. (NYSE:HRB) has struggled to produce revenues over the past several years. In fact, the company’s revenue has declined every year since 2008 as a result of increased competition and increased transition to online tax preparation by individuals. With all of the poor results the company has produced, why have shares nearly doubled in the past year? Am I missing something here?

**Note: 2012’s revenue reflects the sale of the company’s business services division.

About H&R Block

H&R Block, Inc. (NYSE:HRB) is one of the largest tax service providers in the world, with over 25 million clients in 2012. The company operates or franchises almost 11,000 tax preparation locations in the U.S., and more than 1,500 international locations, mostly in Australia and Canada. H&R Block, Inc. (NYSE:HRB) also offers online tax preparation and tax preparation software.

Outlook

After years of declining revenue, H&R Block, Inc. (NYSE:HRB) announced a restructuring program in April 2012, with a goal of $85 million- $100 million in annual cost savings by the end of 2013. The company is projected to earn $1.62 per share for fiscal year 2013, rising to $1.89 and $2.15 in 2014 and 2015, respectively, mostly as a result of cost savings related to restructuring. Revenues are not expected to rise significantly over the next several years, with a total of about a 3% increase expected over the next two years.

On the positive side, H&R Block, Inc. (NYSE:HRB) has two very nice things going for it: an excellent balance sheet and a strong dividend yield of 2.7%. The company has over $1.5 billion in net cash on its balance sheet, but don’t get too excited about this. Shares are still way too expensive at over 23 times earnings, which is very high, especially for a company whose revenue is yet to stabilize.

Better Ways to Play the Tax Service Sector

Despite the decent earnings growth projected for H&R Block over the next few years, there are better ways to play the sector. One of my favorites is Intuit Inc. (NASDAQ:INTU), which is the company behind TurboTax and QuickBooks, and another good choice is to play the sector indirectly, through stores that sell the things that people use to do their own taxes, such as Office Depot Inc (NYSE:ODP).