H&R Block Downgraded At Credit Suisse, Firm 'Uncertain' Of Capital Return Timeline

In a report published Wednesday, Credit Suisse analyst Anjaneya Singh downgraded the rating on H & R Block Inc HRB from Outperform to Neutral, while reducing the price target from $37 to $35.

In the report Credit Suisse noted the key reasons for the rating downgrade as:

• The capital return opportunity already being reflected in the company's share price
• Lower conviction on the timing and materiality of the ACA lift
• Less confidence that Assisted/DIY market splits will normalize in the near term
• Shares looking fairly valued for normalized EPS growth of less than 10 percent

"We believe that HRB's ~$1bn in excess capital is well-understood and reflected in the multiple. While we continue to hold the view that a bank deal ultimately does get done, we are unable to get comfortable on timing, especially when considering the risk of further delays in the event of a deal restructure. Finally, the size of incremental capital return through debt is clouded by HRB's wishes to remain investment grade," analyst Anjaneya Singh wrote.

The EPS estimates for FY16 and FY17 have been reduced from $2.00 to $1.84 and from $2.22 to $1.99, respectively, to reflect a slight downward revision in top line growth expectations and a more "conservative view on repurchases until the bank deal is actually approved."