H&R Block’s stock suffering biggest decline in over 30 years

Shares of H&R Block Inc. plunged in very active trade Wednesday, after the tax preparer’s disappointing margin and revenue outlook set its shareholders up to suffer their worst day since Black Monday.

The stock HRB, -17.18% was down 18% in midday trade, making it the biggest decliner on the New York Stock Exchange. Volume swelled to nearly 20 million shares, nearly 10 times the full-day average of 2.1 million shares.

That puts the stock on track for the biggest one-day percentage decline since it tumbled 20% on Oct. 19, 1987. That was the day the Dow Jones Industrial Average DJIA, -0.11% suffered its biggest percentage loss, shedding 22.6%.

The stock’s next biggest drop was 19% on May 31, 1973.

The company reported late Tuesday earnings and revenue for its fourth quarter, which ended April 30, that beat expectations, and said it was raising its dividend by 4%.

But on the post-earnings-report conference call with analysts, Chief Financial Officer Tony Brown said fiscal 2019 revenue was expected to be between $3.05 billion and $3.1 billion, according to a transcript provided by FactSet. That was below 2018’s $3.16 billion, as well as the FactSet analyst consensus as of May 31 of $3.14 billion.

Separately, Brown said it expected 2019 Ebitda margin, or margin for earnings before interest, taxes, depreciation and amortization, to be 24% to 26%, which was down sharply from 29.8% in fiscal 2018, as a result strategic investments in technology and operations, and charges related to optimizing its office footprint.

Analyst Jeffrey Silber at BMO Capital slashed his stock-price target to $25 from $29, citing the “much weaker than expected” outlook.

“While this may be the right strategy, this sizable [margin] decline will likely spook investors,” Silber wrote in a note to clients. He reiterated the market perform rating he’s had on the stock since March 2016.

The disappointing outlook comes after the stock had run up 20.4% since April 2 to close Tuesday at a 10-month high.

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What may have also disappointed investors was that, despite the dividend increase, H&R Block did not repurchase any of its shares in fiscal 2018, after buying back $317 million in stock in fiscal 2017 and $2 billion in fiscal 2016.

Silber thinks that will change in the current fiscal year, he said, as he suspects the near-term stock-price decline might provide an incentive for management to buy back some stock.

The stock is now down 10% from its price 12 months ago, while the S&P 500 SPX, -0.08% has gained 14%.

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