Stock Alert for Jackson Hewitt Tax Services (JTX)
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    Stock Alert for Jackson Hewitt Tax Services Inc. (JTX)

    Jackson Hewitt Tax Services Inc. (NYSE: JTX)

    Jackson Hewitt Tax Service Inc. (JTX) provides computerized preparation of federal, state and local individual income tax returns in the United States through a nationwide network of franchised and Company-owned offices operating under the brand name Jackson Hewitt Tax Service. The Company provides its customers with convenient, fast and quality tax return preparation services and electronic filing. In connection with their tax return preparation experience, its customers may select various financial products to suit their needs, including refund anticipation loans (RALs). During the fiscal year April 30, 2009 (fiscal 2009), JTX’s franchisees operated 5,610 offices and prepared 87% of the total number of tax returns prepared by its network.

    The Company was founded in 1985 and is headquartered in Parsippany, New Jersey.

    Share Statistics (Jul-14-10) FY

    2007

    FY

    2008

    %

    Chg

    Q4 2008 Q4 2009 %

    Chg

    Symbol JTX Revenue, $Mn 293.2M 278.5M 5.0% n/a 141.2M n/a
    Current price $1.59 Gross marg. 71.0% 63.6% 10.4% n/a 71.0% n/a
    52wk Range: $7.11-0.93 Oper. margin 39.4% 24.0% 39.1% n/a 51.0% n/a
    Avg Vol (3m): 1,306,610 Net margin 22.3% 11.6% 48.0% n/a 29.2% n/a
    Market Cap. 45.74M
    Shares Outst. 28.8M EPS, $ 1.93 1.09 43.5% n/a 1.59 n/a

    Source: Reuters.com, SEC Filings.

    Financial Summary

    JTX recently reported results for the 2010 fiscal year ended April 30, 2010. JTX reported a net loss of $272.3 million, or $9.52 per basic and diluted share for the 2010 fiscal year, versus net income of $19.5 million, or $0.68 per basic and diluted share for the 2009 fiscal year. On an adjusted basis, JTX’s net income in the 2010 fiscal year was $7.5 million, or $0.26 per basic and diluted share, versus adjusted net income of $29.0 million, or $1.02 per basic and diluted share for the 2009 fiscal year. JTX’s 2010 fiscal year reported results reflect the impact of a non-cash goodwill impairment charge of $274.1 million, and a non-cash tax valuation charge of $11.5 million.

    2010 Full Year Consolidated Results

    Total reported revenues for the 2010 fiscal year were $213.8 million, consistent with previous guidance, versus $248.3 million for the 2009 full year. The 13.9% revenue decline resulted from a lower number of tax returns prepared and reduced financial product fees in connection with the limited RAL program, offset in part by slightly higher average revenue per return.

    As previously reported, JTX’s national network of franchised and company-owned offices prepared 2.530 million tax returns in 2010, a decline of 14.4% compared to 2.955 million tax returns prepared in the prior fiscal year. Average revenues per tax return across all of JTX’s operations were $208.14, reflecting a year-over-year increase of 1.0%. The network facilitated 2.191 million financial products, a decrease of 20.3% versus the prior year, primarily as a result of the smaller RAL program. Financial products facilitated include refund anticipation loans, assisted refunds and Gold Guarantee(R) products.

    Royalties and Marketing and Advertising revenues for the 2010 fiscal year were $89.0 million, versus $104.6 million in the 2009 fiscal year, due primarily to the decline in tax returns prepared by franchisees in connection with the RAL program issue, slightly offset by higher average revenue per return. Financial product fees for the 2010 fiscal year were $46.3 million, versus $59.9 million in the prior year, a decline of 22.6%, which resulted from lower aggregate economics with Santa Barbara Tax Products Group, given that they were not providing the RAL product, and the effect of somewhat lower overall negotiated economics with JTX’s bank product providers in 2010.

    Other revenues were $5.1 million in the 2010 fiscal year, down from $6.2 million a year ago due to lower revenues from the sales of new territories and lower electronic filing fees resulting from the decline in the number of tax returns prepared. Service revenues from company-owned office operations were $73.3 million in 2010, versus $77.7 million in 2009, due primarily to the loss of 50% of the RAL program and its impact on the number of tax returns prepared.

    Total reported expenses for the 2010 fiscal year were $465.6 million, including the effect of a 2010 third quarter non-cash goodwill impairment charge of $274.1 million, and compared to total reported expenses of $202.4 million in the 2009 fiscal year. Excluding the expense related adjustments detailed in the Adjusted Results of Operations schedule, total expenses would have been $181.1 million in fiscal 2010, versus $186.3 million in the 2009 fiscal year, a decline of $5.2 million, or 2.8%. The year-over-year decline in adjusted expenses resulted from a reduced overall headcount, as well as improved expense controls in both marketing and company-owned operations.

    Total debt outstanding at year-end was $274 million. Under JTX’s Amended and Restated Credit Facility, debt now consists of a $200 million term loan, a $70 million non-revolving credit commitment and a $105 million revolving credit facility, which had $4 million drawn down at April 30, 2010. This facility has monthly borrowing limits, which generally track off season cash funding requirements. The entire $105 million revolving credit facility will be available to JTX by January 2011. The complete Amendment was filed with the Securities and Exchange Commission on May 3, 2010, as an 8-K attachment.

    Consolidated 2010 Fiscal Year Metrics: RAL Markets Versus Non-RAL Markets

    In JTX markets where the RAL product was available, total tax returns prepared in 2010 were down 8% in the 2010 tax season, and customer retention improved by approximately 1 percentage point to approximately 58%, versus last year. Correspondingly, in JTX markets where the RAL product was unavailable, total tax returns prepared were down 21% in the 2010 tax season, and customer retention declined by over 5 percentage points to approximately 51%, versus the prior year, reflecting the uneven competitive landscape with respect to RALs.

    2010 Fourth-Quarter Consolidated Results

    For the 2010 fourth quarter, total revenues were $125.6 million, versus $141.2 million in the 2009 fourth quarter, reflecting a decline of 11.0% due primarily to the loss of 50% of the RAL program and its resulting reduction in the number of tax returns prepared versus last year’s fourth quarter, offset in part by increased revenues per tax return.

    The 2010 fourth quarter reported net income was $48.1 million, reflecting reported diluted earnings per share (“EPS”) of $1.67, versus reported net income of $41.3 million and reported diluted EPS of $1.45 in the 2009 fourth quarter. On an adjusted basis, the 2010 fourth quarter diluted EPS were $1.14, versus $1.69 in the 2009 fourth quarter.

    Franchise Operations

    Franchise operations revenues for the 2010 fiscal year were $140.4 million, versus $170.7 million in the prior year. The 17.8% revenue decline resulted primarily from the limited RAL program and its resulting effect on the number of tax returns prepared, which declined 15.4%, offset in part by increased revenues per tax return versus the prior year. Royalty revenues decreased by $10.8 million to $61.8 million and Marketing and Advertising revenues decreased by $4.8 million to $27.2 million. The average royalty, marketing and advertising rate was 19.63% in the 2010 fiscal year, versus 19.65% in the prior year.

    Financial product fees were $46.3 million, versus $59.9 million in the prior year, reflecting decreased financial product counts resulting from the limited RAL program, as well as the aforementioned lower revenue associated with products offered through Santa Barbara Tax Products Group, given their inability to provide RALs, and the effect of somewhat lower overall negotiated economics with JTX’s bank product providers in 2010.

    Other revenues declined by $1.1 million, to $5.1 million in fiscal 2010, reflecting lower fees generated from the sale of territories during the year, as well as reduced electronic filing fees collected from franchisees given the fewer number of tax returns prepared. In the 2010 fiscal year, JTX recorded sales of 164 new territories, versus 70 new territory sales in the same period a year ago. The majority of new territory sales in 2010 was related to JTX’s Walmart expansion activities and was completed under a special lower cost incentive program.

    Cost of franchise operations expenses were $37.8 million in fiscal 2010, versus $35.1 million in the prior year. Marketing and advertising expenses were $28.4 million, versus $36.6 million in the prior year. The 2010 fiscal year loss before income taxes was $160.8 million, including the effect of a 2010 third quarter $223.7 million goodwill impairment charge, as compared to income before income taxes of $86.8 million in the 2009 fiscal year. Excluding the effect of expenses reflected in the schedule entitled Adjusted Results of Operations, the franchise operations income before income taxes in the 2010 fiscal year would have been $63.5 million, versus adjusted income before income taxes of $92.3 million in the 2009 fiscal year.

    Company-Owned Office Operations

    Service revenues from company-owned office operations were $73.3 million in the 2010 fiscal year, a decline of $4.3 million, or 5.6%, versus the prior year. This revenue decline resulted primarily from the limited RAL program, which further resulted in a 7.6% year-over-year reduction in the number of tax returns prepared, offset in part by increased revenues per tax return versus the prior year. Total reported expenses in the company-owned office operations were $121.9 million, including a 2010 third quarter pre-tax goodwill impairment charge of $50.4 million, versus total reported expenses of $84.6 million in the 2009 fiscal year. Loss before income taxes for the 2010 fiscal year was $48.6 million, including the effect of the goodwill impairment charge, versus a loss of $6.9 million in the 2009 fiscal year. Excluding the effect of expenses reflected in the  schedule entitled Adjusted Results of Operations, the company-owned office operations income before income taxes in the 2010 fiscal year would have been $2.8 million, versus adjusted income before income taxes of $0.7 million in the 2009 fiscal year.

    Corporate and Other

    Reported loss before income taxes was $62.0 million in fiscal 2010, versus a loss of $46.9 million in the 2009 fiscal year. The increased 2010 fiscal year reported corporate and other loss included $2.6 million of non-recurring expenses incurred in connection with certain corporate advisory fees and JTX’s efforts to find alternative RAL funding prior to the 2010 tax season, as well as increased non-recurring employee termination and related expenses of $4.3 million, and increased interest expense of $7.6 million, versus the prior year. Excluding the effect of expenses reflected in the schedule entitled Adjusted Results of Operations, the corporate and other loss before income taxes in the 2010 fiscal year would have been $53.3 million, versus an adjusted loss before income taxes of $44.0 million in the 2009 fiscal year.

    Financial Strength (Jul-14-2010) Company Industry Sector S&P 500
    Quick Ratio (MRQ) 1.10 1.25 1.06 0.80
    Current Ratio (MRQ) 1.10 1.38 1.41 0.95
    Long-Term Debt to Equity(MRQ) 18.31 34.92 136.73
    Total Debt to Equity (MRQ) 32.96 52.94 204.89

    Source: Reuters.com, SEC Filings.

    Analyst Consensus

    This is the consensus forecast amongst three polled investment analysts. Against the Jackson Hewitt Tax Service Inc company.

    Analyst Detail Buy Outperform Hold Underperform Sell No Opinion
    Latest 0 0 2 1 0 2
    4 weeks ago 0 0 2 1 0 2
    2 months ago 0 0 2 1 0 2
    3 months ago 0 0 1 1 0 2
    Last year 1 1 1 0 0 1

    The two analysts offering 12-month price targets for JTX have a median target of 1.50, with a high estimate of 2.00 and a low estimate of 1.00. The median estimate represents a 14.50% increase from the last price of 1.31.

    Source: www.ft.com

    Consensus Estimates Analysis

    # of Estimates Mean High Low 1 Year Ago
    SALES (in millions)
    Quarter Ending Jul-10 2 4.83 5.00 4.66
    Quarter Ending Oct-10 2 4.14 4.30 3.99
    Year Ending Apr-10 4 204.83 212.10 192.20 257.28
    Year Ending Apr-11 4 211.03 215.51 206.90 273.59
    EARNINGS (per share)
    Quarter Ending Jul-10 4 -0.71 -0.67 -0.75 -0.61
    Quarter Ending Oct-10 4 -0.71 -0.66 -0.74 -0.63
    Year Ending Apr-10 5 0.16 0.27 0.00 0.92
    Year Ending Apr-11 5 -0.12 0.06 -0.52 1.10
    LT Growth Rate (%) 1 8.00 8.00 8.00 8.00

    Source: http://www.reuters.com/finance/stocks/financialHighlights?symbol=JTX

    Investment Highlights

    Shares of JTX jumped soared after the Company’s report of  better-than-expected fourth-quarter net income of $48.1 million, or $1.67 a share. This compares to $1.45 a share in the year-ago period. Analysts polled by FactSet Research were expecting earnings of $1.03 a share. Sales declined to $125.6 million from $141.2 million last year.

    Revenue fell 11% to $125.6 million, attributed to the Company’s failure to fully implement a tax-refund loan program before the opening of the tax season. The Company was also unable to secure funding for about half the refund anticipation loan. Where the Company’s tax-refund loan was available, total tax returns for 2010 fell 8%; where it was not available, total tax returns fell 21%.

    JTX rival H&R Block Inc. (NYSE: HRB) also reported declines, widely attributed to more people using Intuit Inc.’s (Nasdaq: INTU) TurboTax program.

    Source: http://www.jacksonhewitt.com/

    Technical Analysis

    Source: http://stockcharts.com

    JTX’s recent volatility has been greater than normal. This is evidenced by the increased distance between the upper and lower Bollinger Bands. These bands measure volatility using standard deviation and a large width is due to high volatility. Additionally, JTX is trading near its upper Bollinger Band. This suggests that the stock price is high relative to its recent price action.

    JTX’s MACD is currently indicating a weak bullish signal. Although the MACD is trending above the signal line, the indicator is still below zero, which suggests that the underlying moving averages are bearish.

    Comparative Analysis

    Company Name Ticker Price per Mrkt. Cap. P/E P/S
    Jul14-2010 symbol Share, $ $ Mn 2010 2011 2010 2011
    PRGX Global Inc. PRGX 4.40 102.85M 10.42 n/a 0.58 n/a
    H&R Block Inc. HRB 14.52 4.69B 9.65 n/a 1.22 n/a
    Gilman Ciocia Inc. GTAX 0.05 4.81M n/a n/a 0.12 n/a
    Jackson Hewitt Tax Services Inc. JTX 1.59 45.74M n/a n/a 0.12 n/a

    Source: Thomson Financial

    Insider Trading Activity

    NET SHARES PURCHASE ACTIVITY

    Inside Purchases – Last 6 Months

    Shares Transaction
    Purchases n/a 0
    Sales n/a 0
    Net Shares Purchased (Sold) n/a 0
    Total Insider Shares Held 1.3M n/a
    % Net Shares Purchased (Sold) 0.0% n/a

    Net Institutional Purchases — Prior Qtr to Latest Qtr
    Shares
    Net Shares Purchased (Sold) (17,491,800)
    % Change in Institutional Shares Held (460.67%)

    Source: Yahoo Finance

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