Sunday, January 4, 2015

With Health Insurance Reform Phasing In, Is 2015 The Prime Tax Season To Invest In H&R Block?

Kyle Fishman @ SeekingAlpha writes:


  • Health insurance reform already began to be phased into action in 2012.
  • Since January 2012, H&R Block (HRB) has gained approximately 100%, while the S&P 500 gained 60%.
  • The 2015 tax season will reflect income made during 2014. 2014 is the first year that people will be taxed or penalized for not having health insurance.
  • Tax service providers are in a seasonal business, generally reporting profits during the 2nd and 3rd quarters of the year.
Since the start of 2014, all Americans are now required to have health insurance, or else pay an additional tax. The tax/penalty for not having health insurance will be phased in over three years. It is $95 for 2014, $325 for 2015, and $695 for 2016.

However, it may even be more than the numbers listed if your income is high enough. It could be 1% of your income for 2014, 2% of your income of 2015, or 2.5% for 2016. If these percentages are higher than the numbers initially listed above, then you will have to pay that percentage instead.

Since taxes filed in the year 2015 are based on income made during 2014, this represents the first tax season to deal with the complications of the individual insurance mandate.
As the transition of health reform makes tax matters more complicated, this may drive more business to tax services providers such as H&R Block (NYSE:HRB), Intuit (NASDAQ:INTU), and Liberty Tax Inc. (NASDAQ:TAX).

Of these three competitors, I would strongly recommend to go with H&R Block for multiple reasons;

H&R Block is the dominant leader in the field, preparing about one in every seven tax returns in the United States, with an established, well-recognized brand serving customers in over 12,000 retail locations.

H&R Block has a better track record of returning capital through share buybacks and currently yields 2.5%, and also has past history of raising its dividend. By contrast, Intuit only yields about 1% and Liberty Tax Inc. does not pay any dividend at all.

Insider trading activity appears to look a lot more favorable for H & R Block with 22 buys and 18 sells during the last 12 months. By contrast, Intuit has had 60 sells and ZERO buys. Liberty Tax Inc. has had 31 sells and 4 buys.

H&R Block's valuation is quite reasonable with a P/E ratio of approximately 18. Intuit appears to be a lot more expensive with a P/E ratio over 30. Liberty Tax Inc. has a P/E ratio of 35.
H&R Block is much cheaper than Intuit not only from the perspective of the P/E ratio, but also on pure price; $33 is a lot cheaper than $91. I realize many investors believe that the pure price is irrelevant, but it still may have a psychological impact on traders by giving the appearance of being lower and modestly priced.

Risks or Concerns:

-H&R Block has been restructuring its offices, and it is uncertain if that may end up hurting their business, but on surface appears to be saving money by downsizing.

-There is a growing demand for online filing and digital products that are offered for free. Intuit offers online products that may have more appeal to tech-savvy younger generations. H & R Block does offer free online products as well, but it cannot make money by giving their services away for free. However, the complications of the health insurance reform may persuade people to pay a trustworthy professional to take care of the work for them as an assurance that they will get someone who knows how to handle the ongoing changes in the law.

Conclusion: 2015 looks like it may be shaping up to be a strong year for tax service providers, and H&R Block is clearly the best of breed.


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