Page 22 - VTaxOnDemand Independent Industry Analysis of Accounting Industry

arbitration clauses in connection with all of our consumer financial services
products. It is not clear when the CFPB will publish the final version of these
rules, or what their content will be. It is possible that, if the CFPB issues final
rules that prohibit our use of consumer arbitration clauses, the risk of litigation
involving our consumer financial products could increase, and the revenue that we
derive from our consumer financial products could decline, as the result of
adverse outcomes of litigation, increased volume of litigation, and the expense of
defending such litigation.
c. On June 2, 2016, the CFPB issued proposed rules that would change the
regulation of many forms of consumer credit. It is not clear when the CFPB will
publish the final version of these rules, or what their content will be. It is possible
that the final rules, when enacted, could impact EAs. It is also possible that,
depending on the form of the final rules, changes would be necessary to EAs to
comply with the final rules, and that such changes could have a material adverse
effect on the revenue that we derive from EAs.

Wall Street Analysts

“We are downgrading H&R Block (HRB) to Sell (from Neutral) with a price target of
$18 based on 9.5x our FY18E EPS of $1.88. We believe the stock, which has rallied by 9% since
Election Day, reflects complacency in the aftermath of the election of President-elect Trump. We
recall that Trump in August 2015 said “it would be a dream of mine to put H&R Block right out
of business” by simplifying the tax filing process to the extent that the company’s tax preparation
services would no longer be in demand…

While we acknowledge that much of the rhetoric offered up on the campaign trail during
the lead-up to the recent presidential election is unlikely to translate into policy, we observe that
with the Republicans poised to control the White House and both houses of Congress the
likelihood of the enactment of legislation that would simplify tax filing in a manner that could
reduce the need for H&R Block’s tax preparation services has increased significantly.

Investors are greatly concerned that planned reforms under a Trump administration will
dramatically decrease demand for its tax-prep services, which make up the core of its business.
Moreover, the company could also have trouble making money with its financial products,
especially given that regulation covering refund anticipation loans and similar offerings have
made it somewhat more difficult to make offers to customers that will appeal to them. Overall,
H&R Block needs to figure out how to diversify its business if it wants to survive what could be
disastrous impacts from tax reform.”

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