H&R Block Downgraded to Sell After Disappointing Q2 Results - Analyst Blog

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On Dec 13, Zacks Investment Research downgraded H&R Block Inc. (HRB) to a Zacks Rank #4 (Sell).

Why the Downgrade?

H&R Block witnessed declining earnings estimates following weaker-than-expected fiscal second-quarter 2015 results.

H&R Block's operating loss of 45 cents per share was wider than the Zacks Consensus Estimate loss as well as the year-ago loss of 42 cents. Increase in expenses primarily led to the wider loss. Moreover, the tax preparer is also subject to seasonality as it earns revenues in the tax season from January to April each year.

The company delivered negative surprises in two of last four quarters with an average of negative 218.59%. Its top line also lagged the Zacks Consensus Estimate.

Higher cost of revenues as well as higher selling, general and administrative expenses prompted the rise.

A higher magnitude of increase in expenses offset the increase in revenues, resulting in an operating loss of $113 million, wider than the year-ago loss of $103 million.

While H&R Block exited the quarter with cash and cash equivalents decreasing 71% from the fiscal 2014 end level, the outstanding long-term debt was almost flat year over year. Stockholders equity declined 20% from the fiscal 2014 end level.

Net cash used in operating activities was $627.6 million in the first six months, comparing unfavorably with $492.4 million used in the year-ago period.

These negatives resulted in a downfall in the Zacks Consensus Estimate for 2015 and 2016 as most of the estimates were revised downward in the last 30 days. It declined 7.3% to $1.79 for 2015 and 4.5% to $2.11 for 2016.

Other Stocks to Consider

While presently we would like to avoid H&R Block, better-ranked stocks from consumer discretionary sector include GP Strategies Corp. (GPX), Strayer Education Inc. (STRA) and Outerwall Inc. (OUTR). All these stocks carry a Zacks Rank #2 (Buy).


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BLOCK H & R (HRB): Free Stock Analysis Report

STRAYER EDUC (STRA): Free Stock Analysis Report

OUTERWALL INC (OUTR): Free Stock Analysis Report

GP STRATEGIES (GPX): Free Stock Analysis Report

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