Make Money At Tax Time
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The most dreaded chore of the year is upon us as Americans get ready to do their taxes over the next few months...finding receipts, checking, double checking, getting organized in advance of that weekend where we really get down to business. Thanks to our complex tax code, even for middle income earners, several stocks are poised to benefit: Blucora (NASDAQ: BCOR), H&R Block (NYSE: HRB), and Intuit (NASDAQ: INTU).
Americans don't like paperwork; we don't read owner manuals or fine print. If we can pay someone else to do it for us or use an easy online platform we're more than happy to throw money at the task. According to the IRS the average American spends 22 hours doing their taxes at an average cost of $290. That figure is for the 68% of Americans who file a 1040. It's 18 hours and $230 overall for all filers. For business taxpayers the figure balloons to 32 hours and $410. That's pretty much a workweek minus lunch hours and rest breaks.
The Pure Play
The pure play, of course, is H&R Block, the tax preparation company with offices (both franchisee and company owned) across the US, Canada, and Australia. As fellow Fool Sean Williams pointed out it should outperform this year with the ever growing complexity of tax law. As a stock H&R Block is close to a 52 week high at $19.19 and has a 4.20% yield and a 14.79 P/E. What you might not be aware of is that it also provides banking services like credit cards, IRAs, savings and checking accounts, and CDs. Like the other two names, it has an online platform for DIYers.
H&R Block is the nation's leader in tax prep and the company founded in 1946 is keeping up with the times allowing online prep but also videoconferencing with a tax professional. The return on equity is 49.02%. When it reported Q2 earnings in December H&R Block beat analysts' expectations on revenue by $7 million coming in at $137.3 million and a smaller than expected EPS loss of $0.37. Margins also improved.
However, it has been losing share to Intuit (25 million Americans used TurboTax last year) as more and more people adopt the Intuit TurboTax program. H&R Block even with its financial services essentially remains a tax prep play and as such is a cyclical name.
The Promising Play
Intuit has been growing its portfolio of software offerings away from dependence on TurboTax and QuickBooks. With some recent acquisitions Intuit has been actively wooing small business owners with simple low cost solutions to health care management with a tax free debit card, payroll management, and banking services. All these initiatives led Motley Fool to name CEO Brad Smith a CEO of the Week in late December. It's also a socially responsible investor darling with superior benefits for its own employees, community outreach, and low corporate governance risks.
Intuit helps taxpayers and small businesses crunch their numbers but how are its own? Intuit is over three times the size of H&R Block at an $18.44 billion market cap and has more of an international presence operating in India, Singapore, the UK, and Canada. Intuit has a 22.59 P/E and a forward P/E of 16.70 with a 1.10% yield. Intuit is trading just pennies from its 52 week high. The stock has slightly outperformed the S&P 500 up 17% over the last year.
Its most promising asset is GoPayment, an application for small business mobile payment. Mobile payment has been very hot of late with the big moves in eBay mostly due to its PayPal mobile possibilities. While GoPayment competes with Google Wallet, square, and PayPal, small businesses already in the Intuit ecosystem will likely adopt GoPayment as well. GoPayment syncs with QuickBooks and QuickBooks Point Of Sale so small retailers can grow their business. With over 2.8 million small retailers in the US this could be very big for Intuit.
On the Q1 2013 earnings call on November 15, CEO Smith highlighted this very area, saying, " Our mobile products are contributing meaningful growth, with around half of our mobile customers new to the franchise, which is expanding our market reach and our category growth."
The Speculative Play
Blucora, formerly known as InfoSpace until June 2012, only has a $650 million market cap and isn't very well known under its new name. Under its old name InfoSpace was a multi year loser. At the time of the name change analysts projected a one year EPS growth rate above 40%. As Blucora it considers itself a search and web monetization company. It owns two search engines, Dogpile and MetaCrawl, and other software solutions as well as the newly acquired in 2012 TaxACT.
For a spec name the P/E is not bad at 15.79 and the stock is up almost 45% in the last year even with a 21% drubbing after the company's Q3 earnings release on November 1. Revenues were down some $10 million from the Q2 quarter which reported a huge beat. It's had several years of operating losses but has partnered up with Google and Yahoo! as a search aggregator for them. As for the TaxACT acquisition it only earned revenues of $1.5 million for Q3 but to be fair July to October is not tax season.
Going forward guidance for Q4 was maintained at $92 to 95 million in revenues and adjusted EBITDA between $10 to 11 million. It's the two quarters after that that should be the moneymakers reporting top and bottom line from the height of tax season. Analysts expect to see earnings per share grow from $0.03 from the 12/12 quarter to $.95 in the 12/13 quarter.
A Taxing Process
Choosing between these three is like choosing between the 1040, the 1040 EZ and the 1040 A. The choice is fairly clear cut as you already know whether you want yield, growth, or something in-between. Low growth but yield H&R Block is your man. For something that straddles yield and growth it's Intuit and for higher-risk and higher-reward buy Blucora.
leglamp has no position in any stocks mentioned. The Motley Fool recommends Intuit. The Motley Fool owns shares of Intuit. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!