2 Tax Stocks to Watch as Trump Takes the Mic

H & R Block Inc (HRB) and Intuit Inc. (INTU) have been moving in opposite directions over the past year

Kirra Fedyszyn
Feb 28, 2017 at 3:12 PM
facebook twitter linkedin


President Donald Trump's speech before a joint session of Congress tonight will likely be the highlight of the week, with traders hoping the commander-in-chief will bring clarity to several upcoming policy changes. Among the top issues many are hoping to see addressed is tax reform, especially after Trump promised a huge announcement would be forthcoming. So with the speech now just hours away -- and tax return season underway -- we're checking in with tax solutions stocks H & R Block Inc (NYSE:HRB) and Intuit Inc. (NASDAQ:INTU). Below we'll take a look at how shares of HRB and INTU have been performing of late, and where they could be headed next.

Oversold H&R Block May Have Been Due for Relief 

Shares of HRB are up 1.4% at $20.54 ahead of tonight's speech, but considering the stock's 14-day Relative Strength Index (RSI) closed last night at 29 -- in oversold territory -- the shares may have been due for a little relief. In fact, the stock hasn't given shareholders much to brag about in the past 12 months, down 37.5% with the 20-day moving average pressuring the shares lower in recent weeks. The company is due to report earnings next week, but if history is any indicator, that's unlikely to bode well for the stock. Specifically, HRB has moved to the downside in the session after earnings in four of the five most recent quarters, including a 15.6% single-day drop for this period last year.

Options traders have been betting on more downside, too. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), HRB's 50-day put/call volume ratio is docked at 0.94. Though this ratio is call-skewed on an absolute basis, and comes amid relatively light volume, it also ranks higher than 82% of the past year's readings, meaning puts have been bought to open relative to calls at a faster-than-usual clip.

Pessimism toward H & R Block Inc isn't confined to the options pits, either. Short interest on the stock rose by 16.3% during the two most recent reporting periods, and now represents more than seven times the equity's average daily trading volume. Plus, 75% of the analysts tracking HRB rate the shares a "hold" or "strong sell."

Analysts Have Little Love for Outperforming Intuit

Like its peer, INTU has seen unusual levels of bearish attention of late. But the stock hardly seems to deserve it, considering the shares have added roughly 30% year-over-year. In fact, the security hit an all-time high of $125.86 earlier, but was last seen trading down 0.5% at $125.24 -- understandable given its 14-day RSI of 73 is signaling the shares are overbought -- there's plenty of room for a shift in sentiment to keep INTU's rally alive.

For one thing, the brokerage bunch continues to take a dim view of the security, with nine out of 13 firms maintaining a "hold" or worse rating. And the average 12-month price target sits underfoot at $119.75, suggesting a round of upgrades and/or price-target hikes could be overdue. Meanwhile, short interest jumped by nearly 30% during the past two reporting periods, but this increase in selling pressure failed to slow the shares -- speaking to INTU's underlying strength.

Looking to the options pits, put buying has been popular in recent weeks. INTU's 10-day put/call volume ratio of 1.62 on the ISE, CBOE, and PHLX is ranked in the top 78% of all comparable readings from the last 12 months. Still, given Intuit Inc.'s technical strength, it's possible some shareholders have been purchasing puts to protect their paper profits against an unexpected pullback. In any case, it's not a bad time to buy premium, as the stock's Schaeffer's Volatility Index (SVI) of 15% is seated 2 percentage points from an annual low, indicating historically low volatility expectations are being prices into INTU's short-term options.

Don't miss Schaeffer's free weekly stock market forecast. Sign up now for Monday Morning Outlook.

A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earnings guide for Q3 before it's too late!


  
 

Partnercenter