H&R Block (HRB)
Today, H&R Block (HRB: Charts, News, Offers) stock plunged as the President and CEO Russ Smyth resigned to join an unnamed private company. Smyth was brought in about two years ago to turnaround the company by the Chairman Richard Breeden, who staged a proxy contest and ousted the former CEO Mark Ernst in 2007 after the firm posted $1 billion loss tied to subprime mortgages. How does the largest tax preparation company in the U.S. with both physical and digital presence get to the point where its CEO, CFO, and general counsel all quit in the span of 6 months?
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Stock Analysis
Before the rise of tax preparation software and online tax preparation sites, H&R Block clearly dominated the retail tax preparation industry in a similar manner that discount brokers overwhelmed their full-service counterparts in the past two decades. At its peak, H&R Block has 12,500 retail tax offices in the United States, plus another 1,400 abroad. In the digital space, H&R Block offers their own competitively-priced and feature-rich consumer tax software called H&R Block at Home (was formerly TaxCut), as well as online tax preparation and electronic filing from their website. It is no secret that they are facing real and significant threat in the digital space, in particular, Intuit (INTU: Charts, News, Offers) and its TurboTax software. However, it seemed like they were well-prepared to face the challenges with the synergy they built into the digital products and physical presence.
However, the retail tax preparation business experienced a steady decline due to greater adoption of the cheaper digital tax preparation solutions — the poor economic condition over the past two years simply makes the matter worse. Although, TaxCut is a good software, the competition brought on by Intuit has been relentless and made the profit margin in this space razor thin. And there are other smaller competitors that tried to gain ground within the digital space. Under Smyth’s management, H&R Block closed 400 under-performing tax offices, cut about 400 jobs, and rebranded its software to better demonstrate the relationship between its physical H&R Block entity and the TaxCut software.
Although it could be a good thing when a company changes its leader, it’s rarely good when three top officers decided to leave in a short span of time. For now, H&R Block appointed one of its board members, Alan Bennett, as its new CEO. The good news is that Bennett is a veteran who served as the interim CEO from November 20, 2007, to August 1, 2008, cleaned up the company after the subprime mortgages mess, and led one of the best tax season in recent history. But the company’s future is uncertain and the short-term prospect is negative. However, H&R Block is well established with a great balance sheet and a strong cash flow. As such, it could be viewed as undervalued and might be an acquisition target.
Other articles about H&R Block:
- H&R Block Taxes Investors Again by DailyFinance
- Contrarians Buy Calls on H&R Block as Shares Collapse to New 52-Week Low by Wall Street Pit
- Former Aetna CFO Alan Bennett Named CEO Of H&R Block, Inc. by Insurance Capital
Other stocks in the news:
- Tylenol recall is expanded – Johnson & Johnson (JNJ: Charts, News, Offers) is expanding a recall of over-the-counter medicines including Tylenol, Motrin and Benadryl
- Merck Plans Layoff of 15% of Work Force – The $41 billion merger last year of the drug giants Merck (MRK: Charts, News, Offers) and Schering-Plough (SGP.P.B: Charts, News, Offers) has a human cost for pharmaceutical industry employees.
- Berkshire downgraded to sell because of economy — An analyst advised investors Thursday to sell shares of Warren Buffett’s Berkshire Hathaway Inc. (BRK.B: Charts, News, Offers) because the economy may weaken over the rest of the year and hurt demand for its businesses that rely on consumer spending.
