NEW YORK (AP) — Shares of H&R Block soared on Friday as an analyst raised the company's price target, saying he foresees a strong tax season despite a slow start.
THE SPARK: Oppenheimer's Scott Schneeberger increased H&R Block Inc.'s price target to $29 from $27 an kept an "Outperform" rating on the stock.
THE BIG PICTURE: On Thursday the tax preparer reported third-quarter results below Wall Street's expectations, as it dealt with a delay to the start of this year's tax season.
Tax season started late this year because Congress and President Barack Obama reshuffled the tax code in legislation passed in early January. The legislation was designed to avoid the so-called fiscal cliff, a package of tax increases and government spending cuts that were set to take effect in January if Congress and the White House failed to reach a deal.
The final agreement included boosting income tax rates for the wealthiest Americans and extending the existing, lower rates for everyone else. The deal also changed the way investment income is taxed and allowed the expiration of a temporary reduction in the Social Security payroll tax.
The IRS needed an extra two weeks to implement those changes, H&R Block said. It did not begin accepting tax returns until Jan. 31, the end of H&R Block's quarter. The IRS usually starts accepting returns in mid-January, H&R Block said.
THE ANALYSIS: Schneeberger said in a client note that IRS returns are estimated to be down 8 percent for the year to date through Feb. 28 because of the delay to the start of the tax season. He said H&R Block's returns from its stores are down 7.8 percent for the year to date, calling it a "solid" performance. Meanwhile, the company's online returns are up 5.2 percent for the year to date. Schneeberger called these results "formidable."
SHARE ACTION: H&R Block's stock rose $2.19, or 8.8 percent, to $27.17 in afternoon trading. Earlier in the session, shares of the Kansas City, Mo., company rose as high as $27.50, its highest since September 2005.