Option Trade 
H & R Block Inc (NYSE:HRB) Calls 
Monday, December 07, 2015

**OPTION TRADE: Buy the HRB Jan 2016 37.000 call (HRB160115C00037000) at approximately $1.20. Place a pre-determined sell at $2.50.

Note: No protective stop losses added -- but if you wish to do so make it $0.50.

by Ian Harvey

December 07, 2015

H & R Block Inc (NYSE: HRB), a provider of tax preparation and other services, is scheduled to release its Q216 earnings data today, Monday, December 7th, after the market closes. Analysts expect H & R Block to post earnings of ($0.48) per share and revenue of $132.13 million for the quarter.

H&R Block is set to benefit from its intensified focus on the core tax business. As most of the clients file their tax returns from January through April of each year, most of H&R Block’s revenues from income tax return preparation, and related services and products are received during this period. As a result, the tax preparer generally incurs loss in the first three fiscal quarters and enjoys robust earnings in the fourth quarter of each fiscal.

The tax preparer is also positioned to benefit from the Affordable Care Act implementation that was made effective on Jan 1, 2014.

The company also made several enhancements in its online digital tax software focusing on improving monetization and conversion.

In the past week, the shares have outperformed the S&P 500 by 0.9% and the outperformance increases to 0.04% for the last 4 weeks.

H&R Block, Inc. is up 5.64% in the last 3-month period. Year-to-Date the stock performance stands at 12.8%.The company shares have rallied 8.93% from its 1 Year high price. On Nov 2, 2015, the shares registered one year high at $37.53 and the one year low was seen on Jul 6, 2015. The 50-Day Moving Average price is $36.65 and the 200 Day Moving Average price is recorded at $34.10.

Positive moves are apparent:-

• With the US unemployment rate at its lowest level since before the global financial crisis, a number of businesses stand to benefit greatly, and a rejuvenated H&R Block, which provides tax preparation services to the general public is one of those beneficiaries.

• H&R Block's revenues have a lagging but strong correlation with US Total Nonfarm Payrolls. From the company's 2015 10-K, it was apparent that 93.5% of revenue came from the US market, which makes this increase in Nonfarm Payrolls extremely significant for H&R Block. More employed persons of course means more tax returns filed overall, and a larger market to operate in. The catalyst needed to take the stock even higher.

The other 6.5% of revenue comes largely from two growing markets overseas: Canada and Australia.

• Now that H&R Block Bank has been closed, HRB, no longer regulated as the savings and loan holding company, is implementing a new capital structure plan highlighted by a $3.5 billion share repurchase program. With a market cap of $10.14 billion, this is a huge program for the company. The changes HRB makes will add great value to shareholders. It promises some fantastic returns, and should hold firm the already impressive margins.

HRB has been the subject of a number of research analyst reports. Piper Jaffray restated a “buy” rating and set a $44.00 target price on shares of H & R Block in a research report on Monday, October 19th. Zacks Investment Research upgraded shares of H & R Block from a “hold” rating to a “buy” rating and set a $40.00 price target on the stock in a report on Tuesday, October 6th. Oppenheimer reissued a “buy” rating and issued a $38.00 target price on shares of H & R Block in a research note on Wednesday, September 2nd. Finally, BTIG Research reaffirmed a “buy” rating on shares of H & R Block in a research note on Wednesday, September 2nd.

Two investment analysts have rated the stock with a hold rating and six have assigned a buy rating to the stock. The stock presently has a consensus rating of “Buy” and a consensus target price of $42.00.

Harvey’s Options Volatility Indicator


H&R Block is a great company with a strong management team and business model. At the current share price, it becomes a fantastic opportunity, with little downside risk due to the aggressive repurchase plans in place.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

**OPTION TRADE: Buy the HRB Jan 2016 37.000 call (HRB160115C00037000) at approximately $1.20. Place a pre-determined sell at $2.50.

Note: No protective stop losses added -- but if you wish to do so make it $0.50.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.

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