H&R Block downgraded at Oppenheimer on lower earnings outlook, lingering concerns on mortgages

Oppenheimer downgrades H&R Block to ‘Perform’

NEW YORK — Tax preparation company H&R Block has struggled for the last two tax seasons and faces uncertainty over the mortgages it still holds from its former lending operations, an Oppenheimer analyst said Wednesday.

THE OPINION: Analyst Scott Schneeberger said new leadership at the tax preparer, based in Kansas City, Mo., is “logically investing in improvement marketing, customer service, tax pro training, office infrastructure (technology) and a bolstered digital tax offering.” That investment, however, could offset savings from closing offices and cutting staff, and limit earnings per share for the current fiscal year in a tough operating environment, he said.

Schneeberger also pointed to concerns about mortgage bond investors who recently gained the ability to scrutinize underlying loans and “put back” any that were made with perceived misrepresentations in the loan agreements. Concerns that loans originated by Block’s former Option One mortgage unit could be at risk have driven down the stock in recent weeks. “There is a growing concern that a possible increase in HRB’s mortgage loss realization stemming from increased put-back activity could be sizable and ultimately exceed the company’s remaining $188 million loan loss reserve,” the analyst wrote.

THE STOCK: H&R Block shares gained 24 cents, or 2 percent, to $12.60 in midday trading, after hitting a 52-week low of $11.98 shortly after the opening bell. Schneeberger downgraded the stock to “Perform” from “Outperform” and thinks shares “will struggle to significantly emerge from its current trading range.” The stock previously changed hands between $12.45 and $23.23 in the past 52 weeks.