September 1, 2008 - H&R Block (HRB-NYSE) provides tax, investment, retail banking, accounting, and business consulting services and products. It operates in three segments: Tax Services, Business Services, and Consumer Financial Services.

The Business Services segment provides accounting, tax and business consulting services, wealth management, and capital markets services to middle-market companies.

The Consumer Financial Services segment offers brokerage services, and investment planning and related financial advice, as well as retail banking services. It provides annuities, insurance, fee-based accounts, online account access, equity research and focus lists, model portfolios, asset allocation strategies, and other investment tools and information. This segment also offers various banking services, including checking and savings accounts, lines of credit, individual retirement accounts, certificates of deposit, and prepaid debit card accounts. The company was founded in 1946 and is headquartered in Kansas City, Missouri.

The one thing H&R Block doesn't offer is a mortgage. Not anymore. It recently sold that division, losing a financial burden and loosing it to focus on what it does best: Tax preparation. Tax Services is the bread butter of the company and while margins were steady last year compared to the previous year, they have been in decline for several years. Now management is going after the cost structure of the group and upgrading the informaton systems for more efficiency.

Look for more synergy between Block's tax clients and its bank services. With a bank charter, Block can offer financial products as well as basic banking services to a large, built-in customer base, especially to consumers. That charter sits in the Consumer Financial Services sector. The other group, Business Services focuses on national accounting for corporations, and while this division has been inconsistent in contributing to profits, expect managment to apply the same focus on profitability to this group as it has on the other two.

Earnings increased by a healthy percentage, on average, over the last 5 years, advancing 21.5% per year while sales improved by 8% a year, on average. Analysts expect earnings to taper to 11.8% a year on average over the next 5 years. In 2005, they were $1.58, then $1.15, followed by $1.39. This year analysts see $1.66 and $1.91 next year. Next quarterly earnings report will be announced September 3 with the consensus estimate of -.35 cents per share (the July quarter is always negative since this is still a strong seasonally sensitive business). Next quarter is another negative with expectations of -.39 cents (again, another usually negative quarter). Last year, the 2 quarters showed -.34 cents and -.42 cents respectively.

More numbers: There's a dividend of 60 cents a year, just bumped to 15 cents a quarter, up 5.3%, payable Oct. 1 to shareholders of record Sept. 10. That's a yield of 2.2%. Return on Equity is enviable at 37.84% for the trailing 12 months. Last year it was 46%. Market Cap is $8.42 billion with a stock price of $25.76 and shares outstanding of 326.84 million. Insiders own 3.31% of the stock while institutions hold 88.1%. Price to Book is 8.44.

H&R Block is getting back to basics. After selling the mortgage operation, it will again focus on tax services and cross selling into other products and services from its bank and other divisions. Efficiencies and profitability are the new driving forces here. Dig into this one deeper to understand why investors are so positive on it as the stock approaches its all time high of $30.50 (price adjusted for 2 for 1 stock split in 2005).

- Company Web site: www.hrblock.com

- Ted Allrich