Tax Season: Which Companies Will Win?
In case you were distracted by Ben Bernanke’s testimony last week, an interesting trend in consumer behavior is taking shape during this year’s tax-filing season.
Based on news from the top tax service companies, you will see individuals are in a very cost conscious state-of-mind. Consumers are quickly selecting the cheaper of the two options: preparing your own tax forms.
In this week’s Edge, we look at H&R Block, Intuit, as well as a quick snapshot of Jackson Hewitt.
H&R Block (HRB): $17.28 The “Hamburger Helper” of Tax Prep
Shares were crushed last Wednesday after the company warned they would miss their puffed up 2010 earnings outlook. H&R Block had expected fiscal 2010 earnings from continuing operations to amount to $1.60 to $1.80 a share. The consensus estimate from analysts polled by Thomson Reuters is at the low end of that range, $1.61 per share.
Past quarter earnings are due out after the bell on March 8th. The current estimate of analysts polled by Thomson Reuters is for a profit of $.16 cents per share on revenue of $959.2 million.
CEO Russ Smyth said, “We believe industry filings are down significantly due to the recession and sustained, high levels of unemployment … the weak economic conditions have also contributed to a greater shift to do-it-yourself tax preparation methods among first-half clients.”
Comment: The Kansas City-based tax services giant has prepared 6.3 percent fewer tax returns — 10.06 million — through Feb. 15 than during the same span last year (10.7 million tax returns prepared). H&R Block will just have to bear the brunt of less clients and more empty desks at their retail locations this season.
Intuit (INTU): $32.36 The Do-It-Yourself Software Provider
The maker of Turbo-Tax earned $.34 cents per share vs. $.26 cents per share in the same period a year ago. Consensus estimates were expected to be $.32 cents per share, an upside beat for Intuit.
Revenue in the most recent quarterly report increased 8%, better than analyst expectations.
President and CEO of Intuit Brad Smith said on the quarterly conference call, “We’re off to a good start and we’re on track to deliver better than expected revenue and earnings growth for fiscal year 2010.”
Sales of best-in-class TurboTax products jumped 11%. Intuit reported selling 10.97 million TurboTax products compared to 9.9 million in the same period a year ago. The web-based version of the product saw a 23% gain in sales, a sign that online tax preparation is leading the way this season.
Comment: Management recently raised full-year guidance estimates for revenue and profits. Also, It’s important to note that Director David Batchelder purchased a sizable insider stake of over 12.5 million shares on December 15, 2009 when the stock was around $30 per share — only slightly lower than today’s price of $32.36 per share. Initial signs show Intuit with a strong start in capturing the demand for do-it-yourself tax prep.
Jackson Hewitt (JTX): $2.44 The Franchise with Ugly Financials
Fiscal 2010 3rd Quarter earnings results are scheduled for March 11, 2010.
Comment: JTX is quickly burning cash. The company has only $60K in cash remaining relative to $311 million in debt obligations. I would steer clear of this company until the financials improve; otherwise, you might get caught holding the bag as this company files for bankruptcy in the near future or becomes a penny stock.
Among the three tax preparation players highlighted above, Intuit is definitely the safest trend play, while H&R Block and Jackson Hewitt are the contrarian higher-risk pullback plays. Jackson Hewitt is definitely the weakest of the three companies, but still possesses a recognized brand name in the marketplace. Consumers do not mind the hold-your-hand service when they have the extra cushion. However, companies like H&R Block are coming to realize the cushion is either minimal or non-existent for most individuals filing taxes this year.
Disclosure: No positions in the companies mentioned.