H&R Block (HRB-N)

Just announced blow-out earnings and shares are jumping 14% today. Is up 80% in the past year, outperforming 6 of the Mag 7 names. They raised their dividend and buybacks. A good compounder. Trades at 14x today, and a 40% discount to discretionary peers. Operating margin is double their peers in a capital-lite business.

HRB provides assisted income tax return preparation service and is now trading at 10.2x times' Forward P/E. HRB operates in a mature industry. In the last few years, revenue has been stable (except for the drop in COVID years), but growth is very limited. Based on consensus estimates, sales are expected to grow by 2% going forward. As the industry faces a secular headwind by losing shares to Do-It-Yourself (DIY) tax software.
The balance sheet is strong, with net debt of $951M and net debt/EBITDA of 0.8x. The company generated healthy cash flow which was used to repurchase shares aggressively in the last few years. Overall, a 'value' type of name with lots of cash flow, a strong balance sheet but limited growth. Investors can do okay from here given the company continues buying back 5%-8% of its shares annually. We would not say it is recession 'proof' but certainly its business is largely stable, except for the threat of competition as noted above. 
Unlock Premium - Try 5i Free

HRB recently reported results with revenue essentially meeting estimates but EPS of $4.2 missed estimates of $4.46. Tax season came in weaker than HRB was expecting and guidance also came down because of this. They have a $900 mln buyback program available and the shares are cheap. We don't like to call dividends 'safe' but cash flows cover the dividend so we would not be too concerned on this front. We think a case can be made for HRB but with the flat growth, it is not a name that would really interest us.
Unlock Premium - Try 5i Free

(Market call Minute) Uneven revenues and earnings. Own it in the season tax time.