H&R Block (HRB)

Tax preparation company H&R Block (NYSE:HRB) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 5% year on year to $203.6 million. The company expects the full year’s revenue to be around $3.89 billion, close to analysts’ estimates. Its non-GAAP loss of $1.20 per share was 11.3% above analysts’ consensus estimates.

Company Overview

Founded in 1955 by brothers Henry W. Bloch and Richard A. Bloch, H&R Block (NYSE:HRB) is a tax preparation company offering professional tax assistance and financial solutions to individuals and small businesses.

Some consumer discretionary companies don’t fall neatly into a category because their products or services are unique. Although their offerings may be niche, these companies have often found more efficient or technology-enabled ways of doing or selling something that has existed for a while. Technology can be a double-edged sword, though, as it may lower the barriers to entry for new competitors and allow them to do serve customers better.

H&R Block's primary competitors include Intuit (NASDAQ:INTU), Liberty Tax (owned by NextPoint Financial, TSX:NPF.U), TaxAct (owned by Blucora, NASDAQ:BCOR), and private company Jackson Hewitt.

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, H&R Block’s sales grew at a sluggish 5.3% compounded annual growth rate over the last five years. This fell short of our benchmark for the consumer discretionary sector and is a tough starting point for our analysis. We note H&R Block is a seasonal business because it generates most of its revenue during tax season, so the charts in our report will look a bit lumpy.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. H&R Block’s recent performance shows its demand has slowed as its annualized revenue growth of 4.2% over the last two years was below its five-year trend.

We can better understand the company’s revenue dynamics by analyzing its three most important segments: Tax Preparation, Financial Services, and Wave Financial, which are 49.2%, 32.3%, and 14.7% of revenue. Over the last two years, H&R Block’s revenues in all three segments increased. Its Tax Preparation revenue (DIY, assisted, add-on services) averaged year-on-year growth of 4.5% while its Financial Services (Emerald Card, Spruce, interest income) and Wave Financial (business software) revenues averaged 74.9% and 10.9%.

This quarter, H&R Block reported year-on-year revenue growth of 5%, and its $203.6 million of revenue exceeded Wall Street’s estimates by 1.5%.

Looking ahead, sell-side analysts expect revenue to grow 3.2% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and implies its newer products and services will not lead to better top-line performance yet.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

H&R Block’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 22% over the last two years. This profitability was top-notch for a consumer discretionary business, showing it’s an well-run company with an efficient cost structure.

In Q3, H&R Block generated an operating margin profit margin of negative 106%, up 11.5 percentage points year on year. Because H&R Block is a seasonal business, we prefer to analyze longer-term performance rather than one quarter.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

H&R Block’s EPS grew at a remarkable 20.2% compounded annual growth rate over the last five years, higher than its 5.3% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

In Q3, H&R Block reported adjusted EPS of negative $1.20, down from negative $1.17 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

H&R Block has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 16.7% over the last two years, quite impressive for a consumer discretionary business.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although H&R Block hasn’t been the highest-quality company lately because of its poor top-line performance, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 56.3%, splendid for a consumer discretionary business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, H&R Block’s ROIC increased by 1.6 percentage points annually over the last few years. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

H&R Block reported $397.4 million of cash and $1.94 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $993.9 million of EBITDA over the last 12 months, we view H&R Block’s 1.6× net-debt-to-EBITDA ratio as safe. We also see its $44.86 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly H&R Block blew past analysts’ EPS and EBITDA expectations this quarter, as its Financial Services revenue drove the outperformance. Overall, this print had some key positives. The stock remained flat at $51.45 immediately after reporting.

Updated: December 4, 2025 at 9:07 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own H&R Block, you should also grasp the company’s longer-term business quality and valuation.

H&R Block falls short of our quality standards. To begin with, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its market-beating ROIC suggests it has been a well-managed company historically, the downside is its projected EPS for the next year is lacking. On top of that, its low free cash flow margins give it little breathing room.

H&R Block’s P/E ratio based on the next 12 months is 8.7x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $55 on the company (compared to the current share price of $42.03).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.