We reiterate our Hold rating on shares of H&R Block, Inc. (HRB) following the release of Q1 financial results.
Although the fallout from the mortgage business implosion will likely be felt for some time to come, and we continue to have significant concerns regarding other aspects of HRB's business, we believe that negative and positive aspects of the company's outlook are now roughly balanced. Steps have been taken by the management to refocus the company on its core tax businesses, and the emphasis on expense reduction should result in improved margins going forward. Our price target of $23.50 per share represents a multiple of 15x our 2009 EPS estimate.
Given our outlook for future earnings, balanced against our remaining concerns regarding HRB's ongoing business, we consider the shares to be appropriately valued near present levels. Over the last five years, the shares of H&R Block have traded within a range of 10x and 20x forward twelve-month earnings.
While we view some recent developments at the company as long-term positives, we do not believe that the stock should trade in the upper half of this historical multiple range. Currently, the shares trade at approximately 16.8x our 2009 EPS estimate.
Read the full analyst report on HRB
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