A Pair Of Insiders Fishing For Value May Have Caught A Keeper

Insiders stepped up their buying after returning to work following Labor Day. Executives, directors, 10% owners and institutions spent a collective $6.2 billion buying stocks last week. That’s a healthy number. Despite parting with a pile of cash, we only saw one insider buy with a worm on the hook. H&R Block, Inc. (HRB) might be worth a nibble, maybe a full chomp, let’s see.

Like you don’t know, but just in case, H&R Block provides assisted income tax return preparation, do-it-yourself tax, and virtual tax preparation services and products to the general public. Director, Robert Gerard and Chief Executive Officer (CEO) Jeffrey Jones bought a combined 25,150 shares of the tax prep company for a total of $379,753 (cost average of $15.10). (1) It’s not the amount, as it’s not a lot of money by insider buying standards, the bait is multiple buyers and their HRB transactions histories.

“Two heads are better than one,” how many times have we heard that cliché? In the case of insider buying, two or more from the same company coming to the same conclusion simultaneously is what we call cluster buying. Cliché notwithstanding, two head honchos (or more) buying at the same time is better than one based on our experiences.

Gerard stepped into HRB once before in June 2018 to buy 3000 shares around $23.25. (2) A year later, H&R Block was flirting with $30. That’s about 25% in a year, not including dividends. Other than that, he and CEO Jones have done nothing but accept stock options.

The director’s purchase of 12,000 is four times bigger than his 2018 buy but follows a similar pattern. Gerard bought in 2018 after the stock fell sharply. He appears to be hunting for value once again as H&R hasn’t fully recovered from its COVID crash and stumbled from $19 to $13 in June. It’s encouraging to see the CEO, who has never bought before, and a director, who’s lone HRB purchase was well-timed and profitable, come to the same conclusion and buy at the same time.

The personal services company seems to offer value to Gerard, Jones and investors on a couple of fronts. First up, the company currently pays an annual dividend of $1.04 (3), yielding 6.89% as we type. Secondly, H&R Block trades at just 6.26 times its 2021 consensus earnings per share (EPS) estimate of $2.41. (4) Meanwhile, the Kansas City company’s peer group trades closer to 15 times forward estimates.

Fifteen seems like the right number as investors paid an average of 13.29 times HRB’s earnings during the last five-years, with a max price to earnings (P/E) of 23.01 and bottoming out at 6.52. At the low P/E, HRB would trade at $15.71 using next year’s consensus estimate. Right now, the stock is trading at $14.99. At the five-year average P/E, the tax company would trade at $32.03. Maybe that’s a touch high, but the 52-week high is $25.44

Overview: Insiders Gerard and Jones appear to have limited downside with H&R Block, Inc. (HRB) using next year’s consensus EPS estimate and the tax company’s five-year low P/E multiple. Conversely, shares appear to have some significant upside if Wall Street is willing to pay the typical price to earnings ratio since 2015. Toss in the nearly 7% dividend and the stock doesn’t need to move much to achieve a total return in excess of 10%.

  1. https://www.secform4.com/insider-trading/12659.htm
  2. https://www.secform4.com/insider-trading/1413918.htm
  3. https://www.secform4.com/insider-trading/1413918.htm
  4. https://finance.yahoo.com/quote/HRB/analysis?p=HRB