H&R: Two Bets on Block

12/26/2003 12:00 am EST

Focus:

I'm always intrigued when two leading advisors using different strategies each are attracted to the same stock. In this case, John Dessauer, a global expert with a fundamental approach, and Joe Sunderman, a sophisticated technical and contrarian analyst, are fans of H&R Block.

(For more information on these advisors, simply click on their photos.)

Dessauer, John"H&R Block (HRB NYSE) reported an excellent second fiscal quarter," says John Dessauer, editor of Investor’s World. "Wall Street expected a loss of $0.06 a share. Instead, H&R Block delivered a profit of $0.06 a share. Growth in the mortgage business and strength in the Australian tax season were the primary drivers of the profit. This is the first time H&R Block has had a second-quarter profit. Profits are seasonal, with the majority coming during the US tax season, but this quarter shows diversification can smooth out profits. For this year, management estimates $3.56 to $3.72 a share.  I won't be surprised to see the company beat the high end of that range.  At 14 times this year's estimates, the stock remains a Buy."

Sunderman, JoeH&R Block is also a recent "featured stock" from Joseph Sunderman, analyst with Schaeffer's Investment Research. He explains, "Financial-services name H&R Block recently reported precedent-setting earnings. This is particularly significant because the second quarter has historically been the company's slowest, and this move into profitable territory for the reporting period was a first. Technically, the stock recently made a new all-time high and has been outperforming the S&P 500 Index since September, but despite this strong fundamental backdrop and price action, traders remain skeptical. Short interest is also extremely notable; it would take over eight days (based on the stock's average daily volume) for all short positions to be covered. Analysts are also ignoring HRB, as only four currently cover the stock, three of whom rate HRB a ‘hold’. We recommend initiating a long position on HRB with a target of 62 and a stop- loss on a close below 50."

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