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HR Block Delivers Nice Q4 Beat, But Is The Bar Now Set Too High For 2018?

Courtesy of Benzinga.

HR Block Delivers Nice Q4 Beat, But Is The Bar Now Set Too High For 2018?

H & R Block Inc (NYSE: HRB) is up nearly 10 percent after it reported strong fourth-quarter results after the close Tuesday.

After the earnings report — the tax preparer’s adjusted Q4 EPS was $3.76 against an estimate of $3.53 — Credit Suisse raised its price target on the stock from $27 to $29.

The challenge for H&R Block going forward is whether the growth is sustainable, given the company’s “inconsistent track record” in recent years, analyst Anjaneya Singh said in a note.

“We need greater conviction around this to assign a higher multiple to HRB shares, in absence of which, we believe HRB [shares] represent a relatively balanced risk/reward profile.”

Credit Suisse maintained a Neutral rating on H & R Block.

H&R Block CEO Bill Cobb announced his retirement in May, effective July 31. A CEO search is underway, with no timeline for when a replacement will be found.

The company entered 2017 with the goal of changing its client trajectory, Cobb said in a statement.

“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 outgoing CEO said.

Cost Savings Drive 2017 Performance

The tax prep giant’s adjusted EBITDA margins were stronger than expected in Q4 and in fiscal 2017 as a whole, Singh said. H&R Block’s fiscal 2017 adjusted EBITDA ended at $905 million, above Credit Suisse’s $857 million estimate and a consensus figure of $834 million.

The better margins were “driven by cost control,” Singh said, adding that the substantial reductions in expenses in fiscal 2017 won’t be replicated in 2018.

“Management stated that it planned to look for additional cost savings in FY18, but that gains similar to the FY17 expansion would not be possible going forward,” the analyst said.

Related Links:

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Latest Ratings for HRB

Date Firm Action From To
Nov 2016 BTIG Research Downgrades Neutral Sell
Nov 2016 Morgan Stanley Downgrades Overweight Equal-Weight
Aug 2016 BMO Capital Maintains Market Perform

View More Analyst Ratings for HRB


View the Latest Analyst Ratings

Posted-In: Anjaneya Singh Credit SuisseAnalyst Color Price Target Analyst Ratings Best of Benzinga


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