Why H&R Block Stocks Look More Attractive After Earnings Drop

Shares of H&R Block Inc. New York Stock Exchange: HRB shares fell 9% the morning after the release of second-quarter 2024 earnings. The company reported negative earnings per share of $1.27 on revenue of $179.10 million.

Analysts and investors expected negative earnings. Tax preparation is a cyclical business, and the second quarter has historically been the company’s weakest quarter. However, the loss was better than expected and revenue was slightly higher than analysts’ forecasts. Additionally, both numbers were higher than the same quarter in 2023.

But after rising 19% over the past 12 months, HRB shares were more than priced for perfection. The stock was trading at a valuation above its historical average and appeared slightly overvalued among financial stocks. And while the results weren’t disappointing, they still gave investors enough cover to sell the stock. The good news is that the decline in HRB stock will look more attractive as the company enters its two strongest quarters.

One reason to believe HRB stock is shaping up as a buyable dip is that the company reaffirmed its full-year guidance. This puts revenue at a level between $3.53 billion and $3.58 billion. It also expects EPS of between $4.10 and $4.30.

The company is evolving

HRB shares are up 19% over the past 12 months. There have been a couple of catalysts for this growth. First, the company launched a mobile banking service to help offset the cyclical nature of tax preparation. Second, the company is seeing strong growth in its accounting service for small businesses.

Ahead of this tax season, H&R Block is promoting the launch of artificial intelligence (AI) tools to help clients with tax preparation. With these tools, customers can pay taxes with assistance, without assistance or in a hybrid way.

HRB shares represent a great value choice for investors

H&R Block is a good choice for deep value investors. It is a shareholder-friendly company that has returned $3.8 billion to shareholders since 2016.

In the latest quarter, the company repurchased 4.8 million shares for $218.1 million. The company also has authorization to repurchase an additional $1.25 billion in shares through 2025.

H&R Block also pays a dividend that currently yields 2.96%. The dividend has a safe payout ratio of approximately 34%. With revenue and earnings forecasts continuing to rise, the three-year dividend growth will likely continue, likely into the company’s fiscal fourth quarter.

You can buy HRB stock on the dip

H&R Block reached $47 per share once in August 2022. After that, the stock fell below $30 in May 2023. But since then, the stock has seen a good run.

After the company’s earnings report, The Goldman Sachs Group Inc. NYSE:GS quickly reiterated its sell rating on HRB stock. However, in doing so, the company raised its price target from $34 to $38.

When the stock was trading at $47 per share in earnings terms, it would have seemed like a tough buy. But with the post-earnings decline, the stock is trading slightly below the consensus target of H&R Block analyst ratings on MarketBeat.

The post-earnings decline pushed HRB stock below its 50-day simple moving average. It also fell below the support level at around $45.50. From here, investors should look at a support level at around $41.

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