H&R Block Misses Estimates, Surges on Guidance and Upgrade

H&R Block

is up big on Friday, despite missing the Wall Street consensus on its third-quarter FY 2013 earnings. The Kansas City, Missouri-based firm lost $0.22 per share during the third quarter, falling far short of analysts' hopes of a $0.03 loss per share. This figure was also far below the company's Q3 2012 performance in which it broke even. Revenue came in at $472 million for the quarter - down 29 percent year-over-year.

H&R Block believes IRS delays were primarily to blame for the lackluster quarter. According to the firm, the IRS typically begins accepting returns by mid-January. However, the IRS opened its e-file system on January 30 this year - a day before the end of the third quarter. As a result of the delay, the world's largest consumer tax service provider believes industry-wide tax filings have been delayed by up to two weeks versus Q3 2012.

Despite the weak third quarter, H&R Block believes it is on track for FY 2013. President and CEO Bill Cobb states, “Our analysis of industry data gives us confidence that we are on track with our plans for fiscal 2013.” On this note, the company says it is still on pace to deliver $85 to $100 million of pretax earnings from cost reduction initiatives in FY 2013.

Morgan Stanley has upgraded H&R Block from Underweight to Equal-Weight. It has also increased its price target from $17 to $23. According to Morgan Stanley, the original Underweight rating was based on two factors. First, it believed IRS delays would force the company to miss its cost savings targets. Second, Morgan Stanley thought “investors would care about this tax season.” However, Q3 results and YTD stock performance suggest that neither is correct, according to Morgan Stanley. Hence, it has upgraded H&R Block to Equal-Weight.

H&R Block has hovered in the mid-$20s since early February. However, in the aftermath of solid guidance and the Morgan Stanley upgrade, it has climbed to around $27. The stock is now at its highest point since the beginning of the global financial crisis in 2008. It last eclipsed $27 in intraday trading on September 19 that year. H&R Block is up around 7.5 percent on Friday.