Will H&R Block (HRB) Surprise This Earnings Season? - Analyst Blog

H&R Block, Inc. HRB is set to report its fourth-quarter of fiscal 2014 results on Jun 11. Last quarter, the company had posted an 875% negative earnings surprise. Let's see how things are shaping up for this announcement.

Factors this Past Quarter

To intensify its focus on core tax business and free itself from  the regulations by the Federal Reserve Bank as a savings and loan holding company, H&R Block Bank inked a deal with BofI Federal Bank to divest certain assets and liabilities to the latter. Following the divestiture, H&R Block will incur a one-time cost of about 1 cent per share in fiscal 2014 and a dilution of about 7–9 cents per share on an annualized basis, stemming from the service agreement with BofI Federal Bank.

Moreover, the company will vend certain available-for-sale securities held by H&R Block Bank. This transaction involves assumption of a loss of approximately 3 cents per share in fiscal year 2014. However, the bank transaction will result in about $200 to $250 million of immediate excess capital.

As part of the nationwide program for healthcare exchange enrolment, H&R Block partnered GoHealth Insurance, whereby the company's clients can purchase their healthcare insurance online or over the phone through licensed GoHealth agents. However, initiatives to run the pilot program in Arizona as a part of the healthcare exchange enrolment will be dilutive to earnings by approximately 3 to 4 cents per share in fiscal 2014.

As most of the clients file their tax returns from January through April of each year, substantially all of H&R Block's revenues from income tax return preparation and related services and products are received during this period. As a result, the tax preparer generally incurs loss in the first three fiscal quarters and delivers robust earnings in the fourth quarter of each fiscal.

Earnings Whispers?

Our proven model does not conclusively show that H&R Block is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Earnings ESP:  H&R Block has an earnings ESP of 0.00%. That is because the Most Accurate estimate as well as the Zacks Consensus Estimate stand at $3.19 per share.

Zacks Rank: H&R Block's Zacks Rank #3 (Hold) when combined with 0.00% ESP makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:  

Outerwall Inc. OUTR, Earnings ESP of +0.69% and a Zacks Rank #1 (Strong Buy).

SP Plus Corporation (SP) with an Earnings ESP of +11.11% and a Zacks Rank #3.

The ADT Corporation ADT with an Earnings ESP of +2.31% and a Zacks Rank #3.