Digital Tax Solutions And Gig Economy Will Redefine Financial Services

Key Takeaways

• Rapid expansion in tailored business services and advanced Wave platform offerings is set to drive significant, industry-leading revenue growth and margin expansion.
  
• Increased complexity in tax filing and rise of gig economy workers favor H&R Block's premium, expert services and mobile banking, bolstering sustainable client growth and retention.
  
• Digital disruption, shifting consumer preferences, and increased competition threaten H&R Block's core tax services, pressuring margins, revenue growth, and the viability of its retail-focused business model.

Catalysts

Through its subsidiaries, engages in the provision of assisted and do-it-yourself (DIY) tax return preparation services to the general-public primarily in the United States, Canada, and Australia.

• Analyst consensus expects strong growth from H&R Block's small business services, but the company's ability to deliver tailored occupation-specific solutions and to rapidly expand its custom experiences is likely to result in sustained, industry-leading double-digit revenue growth for years, significantly outpacing market expectations and driving long-term earnings growth from a larger, more valuable client base.
  
• Analysts broadly agree high-margin subscription uptake in the Wave platform can lift net margins, yet the accelerating traction in Wave's Pro-Tier product and the potential to layer in additional fintech and accounting functionality could transform Wave into a dominant, cross-sold financial operating system for small businesses, further propelling margin expansion and enhancing recurring revenue visibility far beyond current assumptions.
  
• With the complexity of the tax code only increasing, the growing consumer shift from DIY to Assisted services-especially among affluent and higher-complexity clients-positions H&R Block as the clear beneficiary, supporting outsized, durable revenue streams and higher net average charges as clients rely more on premium, expert-driven offerings.
  
• H&R Block's strategic franchise buyback program, executed at attractive multiples, systematically increases company-owned exposure to high-value markets, boosts control over pricing and customer experience, and accelerates compounding effects on net margins and overall earnings by shifting franchise revenues to richer company-owned economics.
  
• The proliferation of gig economy and freelance work, combined with H&R Block's investments in AI-powered tax solutions and integrated mobile banking (Spruce), uniquely position the company to capture a rapidly expanding, year-round addressable market, supporting future outperformance in both revenue growth and client retention as non-traditional and self-employed earners demand professionalized, seamless financial solutions.

H&R Block Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on H&R Block compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming H&R Block's revenue will grow by 2.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 15.2% today to 18.4% in 3 years time.
• The bullish analysts expect earnings to reach $736.4 million (and earnings per share of $5.72) by about August 2028, up from $565.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 14.0x on those 2028 earnings, up from 13.1x today. This future PE is lower than the current PE for the US Consumer Services industry at 17.4x.
• Analysts expect the number of shares outstanding to decline by 4.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.62%, as per the Simply Wall St company report.

H&R Block Future Earnings Per Share Growth

Risks

• The accelerating shift toward AI-powered automation and IRS-driven free e-filing solutions could commoditize basic tax preparation, weaken H&R Block's core Assisted and DIY offerings, and put sustained downward pressure on both revenue and market share over the long term.
  
• Younger, tech-savvy demographics are increasingly choosing app-based, self-directed tax solutions, which threatens the relevance and future transaction volumes of H&R Block's extensive physical retail network and could erode top-line growth as consumer habits change structurally.
  
• H&R Block's heavy reliance on a seasonal retail tax operation exposes the business to considerable operational leverage and earnings volatility, which may undermine long-term net margin stability as digital models outcompete high-overhead, brick-and-mortar formats.
  
• Underinvestment relative to tech-native rivals in proprietary digital tax platforms, despite incremental progress in features like AI Tax Assist and MyBlock, risks customer attrition and stagnant revenue growth as more sophisticated digital competitors and fintech disruptors target H&R Block's core markets.
  
• Persistent pricing wars and aggressive promotions from competitors, coupled with the zero-cost value proposition of potential government e-file platforms, are likely to compress gross margins and dampen long-term profitability, especially as H&R Block's strategic focus is to convert only the most valuable free filers.

Valuation

• The assumed bullish price target for H&R Block is $70.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of H&R Block's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $70.0, and the most bearish reporting a price target of just $54.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $4.0 billion, earnings will come to $736.4 million, and it would be trading on a PE ratio of 14.0x, assuming you use a discount rate of 7.6%.
• Given the current share price of $55.15, the bullish analyst price target of $70.0 is 21.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.