HRB- Embedded Expectations Analysis - 2019 04 01
H&R Block, Inc. (HRB:USA) currently trades well below corporate averages relative to UAFRS-based (Uniform) Earnings, with an 11.2x Uniform P/E. At these levels, the market has bearish expectations for the firm, and management is concerned about their Tax Pro Go and Ask a Tax Pro services, DIY competitive pressures, and franchise performance.Specifically, management may be exaggerating their ability to attract younger clients, and to simplify the tax filing process through their digital Tax Pro Go and Ask a Tax Pro services. Additionally, they may be downplaying concerns about DIY migration, pricing headwinds, and revenue declines. Also, they may lack confidence in their ability to sustain DIY product improvement and conversion, as well as franchise performance. Moreover, they may be exaggerating the consumer reception of their transparency products.
H&R Block provides assisted, do-it-yourself, and virtual tax return preparation solutions through various channels (including in-person, online and mobile applications, virtual, and desktop software) and distributes the company-branded products and services to the general public in the U.S., Canada, Australia, and their respective territories. The company also provides additional services, such as Refund Transfers, its Peace of Mind? Extended Service Plan (POM), H&R Block Emerald Prepaid Mastercard?, H&R Block Emerald Advance? lines of credit, Tax Identity Shield?, and Refund Advance loans. For its Canadian clients the company also provides POM, H&R Block Instant Refund?, and H&R Block Pay With Refund? services.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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