Business

Who’s buying the rumor about H&R Block?

The tax business has been tough for H&R Block, offering an explanation for why the recurring rumor of a sale is circulating again.
The tax business has been tough for H&R Block, offering an explanation for why the recurring rumor of a sale is circulating again. tlong@newsobserver.com

Two research analysts — noticing a recurrent rumor Friday that H&R Block may be looking for a buyer — said Monday that the idea of a sale makes sense even if it doesn’t happen.

The Kansas City-based tax preparation company has struggled recently, especially during the tax season that ended last April. That means the company’s stock price has slumped, and that makes H&R Block ripe for rumors and maybe even bidders.

One rumor last week claimed that sources inside H&R Block said the company was looking for a buyer, and another cited sources close to the matter.

Shares of H&R Block jumped 52 cents Friday to close at $24.56, a 2.1 percent gain. It gave up nearly half that gain Monday, falling 25 cents to close at $24.31.

An H&R Block spokesman said Monday that the company does not comment on speculation or rumor.

Analysts, however, did talk about it.

Mark Palmer of BTIG Research told clients in a report Monday that Friday’s rumor seemed “like the umpteenth time” he’d seen suggestions of an H&R Block buyout. Although Palmer essentially dismissed the rumor, he endorsed the notion.

“We have held for some time that the notion that HRB (H&R Block) could attract a bid from private equity is not farfetched,” his report said.

Private equity essentially is a catchphrase for generally sophisticated investors who buy publicly traded companies or own companies whose shares don’t trade on Wall Street. Often they intend to take the companies public in the future, selling at a gain.

Alex Paris, the Barrington Research analyst who has followed Block for more than 20 years, saw the Friday rumor but decided not to send out a report to clients. He’s seen it too many times before.

Still, he saw the potential, too.

“I could see that rumor — whether it has any basis in truth — come true,” Paris said Monday.

The analysis that Paris and Palmer both offered essentially was that H&R Block remains a solid company with potential despite recent struggles, and that makes its stock undervalued at prevailing prices. Think of it as a “very valuable franchise,” as Paris called it, that happens to be on sale currently.

Noted value investor Warren Buffett has made big investments in H&R Block in the past.

Neither analyst, however, suggested his clients invest based on the rumor or the logic of a bid.

“I’ve heard these rumors over the years,” Paris said, “but nothing’s happened.”

Mark Davis: 816-234-4372, @mdkcstar

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