Tax Stocks: Not a May to December Romance?

Joel Anderson  |

There are relatively few publicly traded tax preparation companies, but those that are out there are preparing for their busiest time of year. While the tax preparation business is largely focused into January to April, major tax preparation firms like H&R Block (HRB) or Intuit (INTU) try to make ends meet during the rest of year preparing taxes for businesses, which file quarterly, and freelance workers, who have to file quarterly estimates.

Industry is Largely Private

The majority of the accounting industry remains in the hands of privately held companies. Large-scale, corporate accounting is dominated by the "Big Four," four major accouting firms that handle most of the corporate auditing in the world. The Big Four was previously the "Big Eight" until merger consolidated the industry to the "Big Five," and the demise of Arthur Anderesen in 2002 following the Enron scandal further reduced the ranks. Of these four firms, PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young, and KPMG, none are publicly traded.

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Even on a smaller scale, the majority of tax preparation is done by smaller private firms. Approximately 85 percent of tax preparation firms are small firms operating within their neighborhood, non-employers, and lack the market capacity to expand beyond their current operating area.

Bankruptcy for Jackson-Hewitt

Of the major publicy traded firms, the last few years have offered troubled times. Jackson-Hewitt (JHTXQ), the second largest tax-preparation service in the country, filed for bankruptcy on May 24 not long after being delisted from the New York Stock Exchange. Another major publicly traded firm, Taxmasters (TAXS), also filed for bankruptcy this Sunday.

Of the remaining publicly traded firms, H&R Block and Intuit are the two major competitors. Intuit is a provider of financial and business solutions to small and medium businesses and is the maker of the popular Quicken software for business accounting. Intuit also makes TurboTax, an online accounting service that has become a popular option for tax preparation among consumers.

H&R Block, meanwhile, is struggling to maintain its retail business and brick and mortar operations, but it seems clear that online preparations are the trend of the future. H&R Block has started offering free tax preparations for anyone doing a simple 1040EZ preparation, approximately 16 percent of total customers, in an effort to attract customer loyalty and improve foot traffic to its branches. H&R Block, though, has been fighting against unemployment and other factors that are eating away at its business, losing almost 20 percent of its share value over the last five years.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


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