H&R Block (HRB) Earnings Trade

Tax season is a ways off, but H&R Block still has plenty of positives for its business now

   

H&R Block (HRB) will report its fiscal first quarter results after the market closes today, September 3. This earnings report, as well as several other important factors, are the necessary ingredients for a comeback of this provider of tax preparation and banking services, which in turn provides for an excellent call option opportunity for a 50% profit.

Even though this company will do most of its business when tax returns are due, H&R Block still has a great deal of work to do for businesses and others needing financial help on a quarterly basis. This provides for a steady stream of revenue for the time outside the months leading up to tax day on April 15. With this factor in mind, it is important to examine the other influencing factors that will set HRB on the path to recovery from its downward August spiral:

Earnings

Investors have generally liked the company’s prospects, sending shares to all-time record-high levels before falling back the past month. Yet given the company’s seasonal business, expecting H&R Block earnings to look good in its off-season quarters, despite the extra non-seasonal tax work, isn’t realistic.

Therefore, by understanding that a minimization of revenue is expected until the next year’s tax season rolls around again, analysts expect a loss of $0.35 per share in the quarter, slightly better than its $0.38 loss during the same period last year. The stock has been a strong performer thus far in 2013, trading up 53.9% year to date.

9 3 13 earnings H&R Block (HRB) Earnings Trade

Tax Laws are Getting More Complicated

H&R Block is in a favorable position to handle this, particularly with Obamacare introducing new complexities that many taxpayers aren’t even aware of, tax preparers are likely to have a lot more business before next tax season.

Analysts Upgrading H&R Block

HRB has been the subject of a number of recent research reports, with Ned Davis Research, the most recent, upgrading shares of H&R Block from a neutral rating to a buy rating.

9 3 13 analyst H&R Block (HRB) Earnings Trade

Analysts at Zacks reiterated a neutral rating and a price target of $33.00, and Thomson Reuters/Verus upgraded shares of H&R Block from a hold rating to a buy rating.

9 3 13 analyst2 H&R Block (HRB) Earnings Trade

Hedge Funds Favor H&R Block

Heading into Q3, many hedge funds hold long positions in this stock, a change of 9% from one quarter earlier. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings substantially, notably Viking Global, managed by Andreas Halvorsen, holds the biggest position in H&R Block, with $610.4 million, comprising 3.4% of its 13F portfolio. Lone Pine Capital, managed by Stephen Mandel, holds a $211.9 million position; 1% of its 13F portfolio is allocated to the stock.

Pullback Provides Favorable Entry Price

August was not the best month for H&R Block stock prices, dropping from $31.70 to $27.91 on August 30, 2013 – a definite advantage for executing an options call.

9 3 13 hrb H&R Block (HRB) Earnings Trade

Recommendation

Benjamin Franklin once said that nothing in life is certain, “except death and taxes.” Obviously taxes are unavoidable but can be simplified, and hopefully some savings can be recognized by using companies such as H&R Block. Another advantage can be employed to help offset some of the tax paid by using the following options call.

OPTIONS TRADE: Buy the HRB Jan 2014 30.000 call (HRB140118C00030000) at or under $1.40, good for the day. Place a protective stop limit at $0.55 and a pre-determined sell at $2.10.

 Visit stock-options-made-easy.com for a wealth of information that will help you benefit from the exciting and lucrative world of options trading.

 

 


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