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Jackson Hewitt Still In The Woods
Completing one of the most challenging years in its history, tax prep company Jackson Hewitt (NYSE:JTX) surprised analysts with its fiscal year 2010 result. As a result, shares in the nation's second-largest tax prep company surged after years of continuous decline sent sharing free falling to below $1. Despite the better than expected quarter, JTX is by no means out of the woods going forward. The current share price offers some fantastic potential opportunity, but carries the risk of a permanent loss of capital.
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Hoping for a New Start
Jackson Hewitt reported a net loss of $272.3 million, or $9.52 per basic and diluted share for the 2010 fiscal year, versus net income of $19.5 million, or $0.68 per basic and diluted share in the prior fiscal year. Adjusted net income in the 2010 fiscal year was $7.5 million, or $0.26 diluted share, versus adjusted net income of $29.0 million, or $1.02 per share in 2009.
In the 2010 fiscal year, JTX results reflect the impact of a non-cash goodwill impairment charge of $274.1 million, and a non-cash tax valuation charge of $11.5 million. (Learn more about impairment in Impairment Charges: The Good, The Bad and The Ugly.)
Prior to the earnings news, shares were trading for around 90 cents which implies a current P/E multiple of less than four on an adjusted basis. However, with a company in such dire straits like JTX, none of these ratios matter. What matters is if the company can survive and found a way to make money going forward. If it can, shares are absurdly cheap. If not, shares aren't worth much. Management is doing all the right things in terms of reducing costs, but they are not magicians.
Hoping to File an Extension
The tax prep industry continues to suffer from decreasing consumer demand. Even the nation's largest tax prep provider H&R Block (NYSE:HRB) has been facing headwinds. Those headwinds recently led to the resignation of CEO Russ Smyth. On the brighter side, former CEO Alan Bennett has returned to his former post. Even so, the reality for JTX and HRB is that higher unemployment means fewer tax filers and thus fewer potential customers.
In addition, online tax prep software is becoming easier than ever to navigate and file. While both JTX and HRB have an online product, Turbo Tax produced by Intuit (Nasdaq:INTU) still remains the most popular.
Even worse for JTX, they lost 50% of their refund anticipation loan business, a significant blow for the company. Over the years tax preparers have boosted their income by teaming up with financial institutions to provide consumers with the option of an instant refund. That RAL loss accompanied by the industry decline is testing the survival of Jackson Hewitt.
Time Will Tell
Despite how statistically cheap JTX may look, investors should only jump if they understand the risks involved, especially the survival risk.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: 8 Ways To Lose Money On Bonds
Hoping for a New Start
Jackson Hewitt reported a net loss of $272.3 million, or $9.52 per basic and diluted share for the 2010 fiscal year, versus net income of $19.5 million, or $0.68 per basic and diluted share in the prior fiscal year. Adjusted net income in the 2010 fiscal year was $7.5 million, or $0.26 diluted share, versus adjusted net income of $29.0 million, or $1.02 per share in 2009.
In the 2010 fiscal year, JTX results reflect the impact of a non-cash goodwill impairment charge of $274.1 million, and a non-cash tax valuation charge of $11.5 million. (Learn more about impairment in Impairment Charges: The Good, The Bad and The Ugly.)
Prior to the earnings news, shares were trading for around 90 cents which implies a current P/E multiple of less than four on an adjusted basis. However, with a company in such dire straits like JTX, none of these ratios matter. What matters is if the company can survive and found a way to make money going forward. If it can, shares are absurdly cheap. If not, shares aren't worth much. Management is doing all the right things in terms of reducing costs, but they are not magicians.
The tax prep industry continues to suffer from decreasing consumer demand. Even the nation's largest tax prep provider H&R Block (NYSE:HRB) has been facing headwinds. Those headwinds recently led to the resignation of CEO Russ Smyth. On the brighter side, former CEO Alan Bennett has returned to his former post. Even so, the reality for JTX and HRB is that higher unemployment means fewer tax filers and thus fewer potential customers.
In addition, online tax prep software is becoming easier than ever to navigate and file. While both JTX and HRB have an online product, Turbo Tax produced by Intuit (Nasdaq:INTU) still remains the most popular.
Even worse for JTX, they lost 50% of their refund anticipation loan business, a significant blow for the company. Over the years tax preparers have boosted their income by teaming up with financial institutions to provide consumers with the option of an instant refund. That RAL loss accompanied by the industry decline is testing the survival of Jackson Hewitt.
Time Will Tell
Despite how statistically cheap JTX may look, investors should only jump if they understand the risks involved, especially the survival risk.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Sham Gad
Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga
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