H&R Block, Inc.
Thesis
H&R Block is an attractive investment trading at 11x earnings with an 11% free cash flow yield. Misunderstandings about its core business and excessive fears regarding liabilities from a discontinued subsidiary create a dislocation between price and intrinsic value. The company is expected to achieve significant earnings growth due to regulatory changes in the assisted tax market and plans to re-lever its balance sheet to return capital to shareholders, presenting a favorable asymmetric risk profile.
Did it work?
The investment thesis for H&R Block has played out successfully, as evidenced by a substantial price increase of 206.7% over the 172 months since the pitch. The anticipated earnings growth due to regulatory changes and the company's strategic capital return initiatives have likely contributed to this positive performance, validating the thesis of an undervalued stock with a favorable risk profile.
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