H&R Block Inc Valuation – June 2016 $HRB

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today - June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how H&R Block Inc (HRB) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): H&R Block, Inc. (H&R Block) is a holding company. The Company, through its subsidiaries, provides tax preparation and other services. The Company provides assisted income tax return preparation, digital do-it-yourself (DIY) tax solutions and other services and products related to income tax return preparation to the general public primarily in the United States, and its territories, Canada and Australia. The Company offers a range of online tax services, from tax advice to complete professional and DIY tax return preparation and electronic filing, through its Website at www.hrblock.com. Services available at this Website allow clients to prepare their federal and state income tax returns using online tax program, access tax tips, advice and tax-related news, and use calculators for tax planning. The Company develops and markets DIY desktop income tax preparation software. It develops and offers applications for mobile devices, which provide tax and related services to clients.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of HRB – June 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $5,157,509,891 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.18 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 151.55% Pass
6. Moderate PEmg Ratio PEmg < 20 13.94 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 247.20 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.18 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 8.22 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

HRB value chart June 2016

EPSmg $1.63
MG Growth Estimate 3.66%
MG Value $25.86
Opinion Fairly Valued
MG Grade C-
MG Value based on 3% Growth $23.69
MG Value based on 0% Growth $13.89
Market Implied Growth Rate 2.72%
Current Price $22.77
% of Intrinsic Value 88.06%

H & R Block Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $1.31 in 2013 to an estimated $1.63 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 2.72% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

H & R Block Inc receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

HRB charts June 2016

Net Current Asset Value (NCAV) -$6.43
Graham Number $1.97
PEmg 13.94
Current Ratio 1.18
PB Ratio 247.20
Current Dividend $0.80
Dividend Yield 3.51%
Number of Consecutive Years of Dividend Growth 0


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Most Recent Balance Sheet Figures

Balance Sheet Information 4/1/2016
Total Current Assets $1,222,298,000
Total Current Liabilities $1,039,605,000
Long-Term Debt $1,501,925,000
Total Assets $2,857,775,000
Intangible Assets $904,642,000
Total Liabilities $2,834,672,000
Shares Outstanding (Diluted Average) 250,818,000

Earnings Per Share History

Next Fiscal Year Estimate $1.68
Apr2016 $1.49
Apr2015 $1.71
Apr2014 $1.72
Apr2013 $1.58
Apr2012 $0.89
Apr2011 $1.31
Apr2010 $1.43
Apr2009 $1.45
Apr2008 -$0.94
Apr2007 -$1.33
Apr2006 $1.47
Apr2005 $1.89
Apr2004 $1.93
Apr2003 $1.58
Apr2002 $1.16
Apr2001 $0.76
Apr2000 $0.64
Apr1999 $0.54
Apr1998 $0.91
Apr1997 $0.11

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.63
Apr2016 $1.57
Apr2015 $1.55
Apr2014 $1.44
Apr2013 $1.31
Apr2012 $1.06
Apr2011 $0.89
Apr2010 $0.60
Apr2009 $0.29
Apr2008 $0.01
Apr2007 $0.69
Apr2006 $1.67
Apr2005 $1.66
Apr2004 $1.44
Apr2003 $1.11
Apr2002 $0.85
Apr2001 $0.66

Recommended Reading:

Other ModernGraham posts about the company

40 Companies in the Spotlight This Week – 2/21/15
H&R Block Inc. Annual Valuation – 2015 $HRB
30 Companies in the Spotlight This Week – 11/15/14
H&R Block Inc. Quarterly Valuation – November 2014 $HRB
20 Companies in the Spotlight This Week – 8/16/14

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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