H&R Block Prepared For Boost From Affordable Care Act

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Written by Chase Sagum | Last Updated June 26th, 2019
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December is the calm before the storm for tax preparers and investors alike, and the Affordable Care Act (ACA) will only add to the chaos this tax season. For the first time, taxpayers from across the country will face new fines, tax worksheets, and overall complexities when filing their taxes. Paid tax preparers will face an increase in workload and longer turnaround times. Taxpayers will find refund checks lower than those in years past. Investors, however, will find new opportunities.

Despite posting lower than expected earnings during the previous quarter, H&R Block is expecting double-digit returns by fiscal year end (April 30th).   Securities from companies in the tax service industry are inherently cyclical with the largest earnings coinciding with the April and October tax seasons.

H&R Block (HRB) is currently trading at $34.39 despite independent analysis valuing the securities between $37 and $38. With a 12-month gain of 18%, HRB is outpacing the S&P 500, which gained 12%. Revenue is expected to increase from $134 million to $142 million thanks in large part to the ACA driving additional demand for paid tax services. HBR's services are a consumer staple and the increased demand will result in higher rates.   For investors, this is fantastic.

Expecting to sell H&R Block Bank in FY 2016, the long-term outlook for HRB is bright. By selling its banking and lending businesses, H&R Block intends to reduce the volume of HBR shares on the market. The corporate stock purchases will likely result in an additional boost to share earnings in FY 2017.

H&R Block depends on a busy tax season to drive revenues and this year is no different. Thanks to the Affordable Care Act, HRB is expecting an additional boost this fiscal year. A storm is coming this tax season, and its one that investors should follow.

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