|Shares Out. (in M):||271||P/E||10.9x||10.3x|
|Market Cap (in $M):||5,060||P/FCF||10.9x||10.3x|
|Net Debt (in $M):||246||EBIT||849||916|
|TEV (in $M):||5,306||TEV/EBIT||6.2x||5.8x|
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Key Stats / Current Valuation at $18.67
I estimate that EPS will be approximately $2.00 by FY2014 (April 2014). If HRB gets more aggressive with buybacks when it sells its bank, EPS will easily be in excess of $2.00.
At 14x, HRB is worth $28.00 or +50% (+54% including dividend). I think 14x is reasonable because this is where HRB traded earlier in the decade before it started diversifying into other businesses like Sand Canyon, RSM McGladrey, and HRB Financial Advisors. It also seems reasonable given HRB will be growing earnings at 10-15% per annum.
At 12x, HRB is worth $24.00 or +29% (+33% including dividend). 12x is the median multiple HRB has traded at over the past decade. This includes good times when HRB was squarely focused on tax (early 2000s) and bad times when investors thought there was risk HRB could go bankrupt because the corporate veil would be pierced from mortgage putback liabilities.
What’s the downside? The 4.3% dividend provides nice downside protection. Over the past decade, HRB’s yield peaked at 5.1% in the worst of times. Given there is little risk to the dividend, I think this is a reasonable downside case. At a 5.1% yield, HRB would trade at $15.68 or -16%.
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