Intrinsic value of H&R Block, Inc. - HRB

Previous Close

$27.52

  Intrinsic Value

$22.04

stock screener

  Rating & Target

hold

-20%

Previous close

$27.52

 
Intrinsic value

$22.04

 
Up/down potential

-20%

 
Rating

hold

We calculate the intrinsic value of HRB stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 5.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  3,223
  3,297
  3,382
  3,477
  3,583
  3,698
  3,824
  3,961
  4,107
  4,265
  4,434
  4,614
  4,805
  5,009
  5,225
  5,454
  5,696
  5,953
  6,223
  6,509
  6,811
  7,129
  7,465
  7,818
  8,190
  8,582
  8,995
  9,429
  9,885
  10,366
Variable operating expenses, $m
  2,280
  2,331
  2,388
  2,453
  2,525
  2,603
  2,689
  2,782
  2,882
  2,989
  3,015
  3,138
  3,268
  3,407
  3,553
  3,709
  3,874
  4,048
  4,233
  4,427
  4,632
  4,849
  5,077
  5,317
  5,570
  5,837
  6,117
  6,412
  6,723
  7,050
Fixed operating expenses, $m
  179
  183
  187
  191
  195
  199
  204
  208
  213
  218
  222
  227
  232
  237
  243
  248
  253
  259
  265
  270
  276
  282
  289
  295
  302
  308
  315
  322
  329
  336
Total operating expenses, $m
  2,459
  2,514
  2,575
  2,644
  2,720
  2,802
  2,893
  2,990
  3,095
  3,207
  3,237
  3,365
  3,500
  3,644
  3,796
  3,957
  4,127
  4,307
  4,498
  4,697
  4,908
  5,131
  5,366
  5,612
  5,872
  6,145
  6,432
  6,734
  7,052
  7,386
Operating income, $m
  764
  784
  807
  833
  863
  896
  931
  971
  1,013
  1,059
  1,196
  1,249
  1,305
  1,365
  1,429
  1,497
  1,569
  1,645
  1,726
  1,812
  1,903
  1,998
  2,099
  2,206
  2,319
  2,437
  2,563
  2,695
  2,834
  2,980
EBITDA, $m
  966
  989
  1,015
  1,044
  1,078
  1,114
  1,155
  1,199
  1,246
  1,298
  1,353
  1,412
  1,475
  1,542
  1,614
  1,690
  1,770
  1,856
  1,946
  2,042
  2,143
  2,250
  2,363
  2,482
  2,608
  2,741
  2,880
  3,028
  3,183
  3,346
Interest expense (income), $m
  87
  90
  53
  56
  59
  63
  67
  72
  77
  82
  88
  94
  101
  108
  115
  124
  132
  141
  151
  161
  172
  183
  195
  208
  221
  235
  250
  265
  282
  299
  317
Earnings before tax, $m
  674
  731
  751
  774
  800
  829
  860
  894
  931
  971
  1,102
  1,148
  1,197
  1,250
  1,305
  1,365
  1,428
  1,495
  1,565
  1,640
  1,720
  1,803
  1,892
  1,985
  2,084
  2,188
  2,297
  2,413
  2,535
  2,663
Tax expense, $m
  182
  197
  203
  209
  216
  224
  232
  241
  251
  262
  298
  310
  323
  337
  352
  368
  386
  404
  423
  443
  464
  487
  511
  536
  563
  591
  620
  651
  684
  719
Net income, $m
  492
  534
  548
  565
  584
  605
  628
  653
  680
  709
  804
  838
  874
  912
  953
  996
  1,042
  1,091
  1,143
  1,197
  1,255
  1,316
  1,381
  1,449
  1,521
  1,597
  1,677
  1,761
  1,850
  1,944

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  2,367
  2,421
  2,483
  2,553
  2,630
  2,715
  2,808
  2,908
  3,016
  3,132
  3,255
  3,387
  3,528
  3,678
  3,836
  4,004
  4,182
  4,371
  4,569
  4,779
  5,001
  5,234
  5,481
  5,740
  6,013
  6,301
  6,604
  6,923
  7,258
  7,611
Adjusted assets (=assets-cash), $m
  2,367
  2,421
  2,483
  2,553
  2,630
  2,715
  2,808
  2,908
  3,016
  3,132
  3,255
  3,387
  3,528
  3,678
  3,836
  4,004
  4,182
  4,371
  4,569
  4,779
  5,001
  5,234
  5,481
  5,740
  6,013
  6,301
  6,604
  6,923
  7,258
  7,611
Revenue / Adjusted assets
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
  1.362
Average production assets, $m
  706
  722
  741
  762
  785
  810
  838
  867
  900
  934
  971
  1,010
  1,052
  1,097
  1,144
  1,194
  1,247
  1,304
  1,363
  1,426
  1,492
  1,561
  1,635
  1,712
  1,794
  1,880
  1,970
  2,065
  2,165
  2,270
Working capital, $m
  -625
  -640
  -656
  -675
  -695
  -717
  -742
  -768
  -797
  -827
  -860
  -895
  -932
  -972
  -1,014
  -1,058
  -1,105
  -1,155
  -1,207
  -1,263
  -1,321
  -1,383
  -1,448
  -1,517
  -1,589
  -1,665
  -1,745
  -1,829
  -1,918
  -2,011
Total debt, $m
  879
  928
  984
  1,047
  1,117
  1,193
  1,276
  1,367
  1,464
  1,568
  1,679
  1,798
  1,925
  2,059
  2,202
  2,353
  2,514
  2,683
  2,862
  3,051
  3,250
  3,460
  3,682
  3,916
  4,162
  4,421
  4,693
  4,980
  5,282
  5,599
Total liabilities, $m
  2,130
  2,179
  2,235
  2,298
  2,367
  2,444
  2,527
  2,617
  2,714
  2,818
  2,930
  3,049
  3,175
  3,310
  3,453
  3,604
  3,764
  3,933
  4,112
  4,301
  4,501
  4,711
  4,933
  5,166
  5,412
  5,671
  5,944
  6,230
  6,532
  6,850
Total equity, $m
  237
  242
  248
  255
  263
  272
  281
  291
  302
  313
  326
  339
  353
  368
  384
  400
  418
  437
  457
  478
  500
  523
  548
  574
  601
  630
  660
  692
  726
  761
Total liabilities and equity, $m
  2,367
  2,421
  2,483
  2,553
  2,630
  2,716
  2,808
  2,908
  3,016
  3,131
  3,256
  3,388
  3,528
  3,678
  3,837
  4,004
  4,182
  4,370
  4,569
  4,779
  5,001
  5,234
  5,481
  5,740
  6,013
  6,301
  6,604
  6,922
  7,258
  7,611
Debt-to-equity ratio
  3.720
  3.830
  3.960
  4.100
  4.250
  4.390
  4.550
  4.700
  4.850
  5.010
  5.160
  5.310
  5.460
  5.600
  5.740
  5.880
  6.010
  6.140
  6.260
  6.380
  6.500
  6.610
  6.720
  6.820
  6.920
  7.020
  7.110
  7.190
  7.280
  7.360
Adjusted equity ratio
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  492
  534
  548
  565
  584
  605
  628
  653
  680
  709
  804
  838
  874
  912
  953
  996
  1,042
  1,091
  1,143
  1,197
  1,255
  1,316
  1,381
  1,449
  1,521
  1,597
  1,677
  1,761
  1,850
  1,944
Depreciation, amort., depletion, $m
  202
  205
  208
  211
  215
  219
  223
  228
  233
  239
  157
  163
  170
  177
  185
  193
  201
  210
  220
  230
  241
  252
  264
  276
  289
  303
  318
  333
  349
  366
Funds from operations, $m
  694
  738
  756
  776
  799
  824
  851
  881
  913
  948
  961
  1,001
  1,044
  1,089
  1,138
  1,189
  1,243
  1,301
  1,363
  1,427
  1,496
  1,568
  1,645
  1,725
  1,810
  1,900
  1,995
  2,094
  2,200
  2,310
Change in working capital, $m
  -12
  -14
  -16
  -18
  -20
  -22
  -24
  -26
  -28
  -31
  -33
  -35
  -37
  -40
  -42
  -44
  -47
  -50
  -53
  -55
  -59
  -62
  -65
  -69
  -72
  -76
  -80
  -84
  -89
  -93
Cash from operations, $m
  707
  753
  773
  795
  819
  846
  875
  907
  941
  978
  994
  1,036
  1,081
  1,129
  1,179
  1,233
  1,291
  1,351
  1,415
  1,483
  1,554
  1,630
  1,710
  1,794
  1,883
  1,976
  2,075
  2,179
  2,288
  2,403
Maintenance CAPEX, $m
  -112
  -114
  -116
  -119
  -123
  -127
  -131
  -135
  -140
  -145
  -151
  -157
  -163
  -170
  -177
  -185
  -193
  -201
  -210
  -220
  -230
  -241
  -252
  -264
  -276
  -289
  -303
  -318
  -333
  -349
New CAPEX, $m
  -12
  -16
  -19
  -21
  -23
  -25
  -28
  -30
  -32
  -35
  -37
  -39
  -42
  -45
  -47
  -50
  -53
  -56
  -59
  -63
  -66
  -70
  -73
  -77
  -82
  -86
  -90
  -95
  -100
  -105
Cash from investing activities, $m
  -124
  -130
  -135
  -140
  -146
  -152
  -159
  -165
  -172
  -180
  -188
  -196
  -205
  -215
  -224
  -235
  -246
  -257
  -269
  -283
  -296
  -311
  -325
  -341
  -358
  -375
  -393
  -413
  -433
  -454
Free cash flow, $m
  582
  623
  637
  654
  673
  694
  717
  742
  769
  799
  806
  840
  876
  914
  955
  999
  1,045
  1,094
  1,146
  1,200
  1,258
  1,320
  1,384
  1,453
  1,525
  1,601
  1,681
  1,766
  1,855
  1,949
Issuance/(repayment) of debt, $m
  -616
  49
  56
  63
  70
  76
  83
  90
  97
  104
  111
  119
  127
  135
  143
  151
  160
  169
  179
  189
  199
  210
  222
  234
  246
  259
  273
  287
  302
  317
Issuance/(repurchase) of shares, $m
  171
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -445
  49
  56
  63
  70
  76
  83
  90
  97
  104
  111
  119
  127
  135
  143
  151
  160
  169
  179
  189
  199
  210
  222
  234
  246
  259
  273
  287
  302
  317
Total cash flow (excl. dividends), $m
  137
  672
  693
  717
  743
  771
  800
  832
  866
  903
  918
  959
  1,003
  1,049
  1,098
  1,150
  1,205
  1,263
  1,324
  1,389
  1,458
  1,530
  1,606
  1,686
  1,771
  1,860
  1,954
  2,053
  2,157
  2,266
Retained Cash Flow (-), $m
  -663
  -5
  -6
  -7
  -8
  -8
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -34
  -35
Prev. year cash balance distribution, $m
  820
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  294
  666
  687
  710
  735
  762
  791
  822
  856
  891
  905
  946
  988
  1,034
  1,082
  1,133
  1,187
  1,244
  1,305
  1,368
  1,436
  1,507
  1,581
  1,660
  1,744
  1,831
  1,924
  2,021
  2,123
  2,231
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  282
  610
  598
  585
  570
  553
  534
  514
  491
  467
  430
  404
  376
  347
  318
  288
  258
  229
  201
  174
  148
  125
  104
  85
  68
  53
  41
  31
  23
  17
Current shareholders' claim on cash, %
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

H&R Block, Inc. (H&R Block), through its subsidiaries, provides tax preparation and other services. The Company provides assisted income tax return preparation, digital do-it-yourself (DIY) tax solutions and other services and products related to income tax return preparation to the general public primarily in the United States, Canada, Australia and their respective territories. Assisted income tax return preparation and related services are provided by tax professionals through a system of retail offices operated directly by the Company or its franchisees. It offers tax support, planning, and business accounting and advisory services to its clients. The Company offers a range of online tax services, including preparation of federal and state income tax returns, review of tax returns by a tax professional, access to tax tips, advice and tax-related news, use of calculators for tax planning, error checking and electronic filing.

FINANCIAL RATIOS  of  H&R Block, Inc. (HRB)

Valuation Ratios
P/E Ratio 13.9
Price to Sales 1.9
Price to Book -93.5
Price to Tangible Book
Price to Cash Flow 10.4
Price to Free Cash Flow 12.4
Growth Rates
Sales Growth Rate -0.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -11%
Cap. Spend. - 3 Yr. Gr. Rate -9.5%
Financial Strength
Quick Ratio 1011
Current Ratio 0.1
LT Debt to Equity -2447.5%
Total Debt to Equity -2449.2%
Interest Coverage 8
Management Effectiveness
Return On Assets 16.9%
Ret/ On Assets - 3 Yr. Avg. 13%
Return On Total Capital 27.7%
Ret/ On T. Cap. - 3 Yr. Avg. 22.3%
Return On Equity -2152.6%
Return On Equity - 3 Yr. Avg. -694.8%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 47.6%
Gross Margin - 3 Yr. Avg. 48%
EBITDA Margin 29.6%
EBITDA Margin - 3 Yr. Avg. 28.9%
Operating Margin 23.6%
Oper. Margin - 3 Yr. Avg. 23.4%
Pre-Tax Margin 20.7%
Pre-Tax Margin - 3 Yr. Avg. 21.2%
Net Profit Margin 13.5%
Net Profit Margin - 3 Yr. Avg. 13.7%
Effective Tax Rate 33.1%
Eff/ Tax Rate - 3 Yr. Avg. 33.3%
Payout Ratio 45.7%

HRB stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HRB stock intrinsic value calculation we used $3160 million for the last fiscal year's total revenue generated by H&R Block, Inc.. The default revenue input number comes from 0001 income statement of H&R Block, Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our HRB stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for HRB is calculated based on our internal credit rating of H&R Block, Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of H&R Block, Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of HRB stock the variable cost ratio is equal to 70.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $175 million in the base year in the intrinsic value calculation for HRB stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 6% for H&R Block, Inc..

Corporate tax rate of 27% is the nominal tax rate for H&R Block, Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the HRB stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for HRB are equal to 21.9%.

Life of production assets of 6.2 years is the average useful life of capital assets used in H&R Block, Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for HRB is equal to -19.4%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $393.711 million for H&R Block, Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 203.285 million for H&R Block, Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of H&R Block, Inc. at the current share price and the inputted number of shares is $5.6 billion.

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