Uncertainty over thesale of mortgage unit weighs heavily on the business services provider H&R Block, Inc. (HRB) feels Zacks senior analyst Sean P.Smith. He maintains a Sell rating on the shares in his latest research report:
'We maintain our Sell rating for HRB prior to the release of Q2 results. Despite recent changes in the company's senior management team, significant uncertainties remain with respect to the pending disposal of the company's Option One mortgage business.
'While the company's core tax business is showing signs of improvement, we consider the issues regarding the potential sale of Option One to be of paramount importance from an investment perspective at this time.
'The company has classified the mortgage operations as discontinued operations, but we note that as certain closing conditions of the sale agreement are currently not being met, there remains the possibility that HRB will not be able to sell Option One to Cerberus. We note that the loss posted by the mortgage business in the first quarter of $0.59 per share is nearly half our projected full-year 2008 earnings from continuing operations of $1.29 per share.
'Given the multiple occurrences of downward revisions to guidance over the last year, as well as the continued uncertainty related to the Option One sale, we believe the previous management team's credibility with investors had been damaged.
'While we view the change in management favorably, we believe that much work remains to be done before the company can focus on its core tax preparation business. Until the picture regarding this sale becomes clearer, we would not recommend that investors initiate new positions in shares of HRB. Our $18.00 price target is based on a price to earnings multiple of 14x our fiscal year 2008 earnings estimate.'
Read the full analyst report on HRB .
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