H&R BLOCK INC (HRB) stock intrinsic value fair value estimate & owner earnings analysis

REFRESHED DCF (supersedes Analysis id=544, dated 2026-08-16). NOTE ON MARGIN-OF-SAFETY PRICE: the margin-of-safety price of $40.00 is a USER-SPECIFIED OVERRIDE, not derived from this model. The model-derived margin-of-safety price is ~$51.50 (base case less 25% margin of safety); a higher-conviction level was assessed at $46-48 given terminal-value model risk. $40.00 sits BELOW the modeled bear case of $40.80, meaning this trigger only fires in a scenario worse than the modeled downside. Documented here for audit trail. WHY REFRESHED: Analysis 544 was built on the FY2025 10-K and a 137.3M diluted share count. HRB reported FY2026 (year ended 6/30/2026) on 8/11/2026, five days before that analysis ran, and the XBRL store held only FY2025 annuals plus 9M FY2026. FY2026 actuals: revenue $3.95B (+4.9%), GAAP net income from continuing ops $736.3M (+20.8%) including a one-time non-cash $84.1M IRS examination tax benefit ($0.65/sh), adjusted net income $688.0M (+6.9%), adjusted EPS $5.31 (+13.9%), operating cash flow ~$838.7M (+23%). Repurchased 10.5M shares (7.9% of shares out) at an average $47.48 for $500.3M; ~$600M remains on the $1.5B authorization. Dividend raised 10% to $0.46/qtr. Shares outstanding now 123.27M vs the 137.3M used previously. FY2027 guidance: revenue $4.11-4.16B, adjusted EBITDA $1.11-1.14B, adjusted diluted EPS $6.04-6.24, tax rate ~23%. OWNER EARNINGS METHODOLOGY (changed from prior analysis): prior model used NI + D&A - capex, which adds back ~$46M/yr of acquired-intangible amortization while ignoring the $36-55M/yr HRB spends on business acquisitions (largely franchise buybacks) that create those intangibles. In FY2025 depreciation was only ~$71M against $82M of capex, so the entire positive D&A-less-capex spread came from intangible amortization. This model charges acquisition spend as maintenance-like. FY2026 normalized owner earnings, backing out the one-time tax benefit and charging capex (~$78M) and acquisitions (~$56M), lands in a $640-695M range; base uses $650M. Prior model also cherry-picked FY2021 ($687.9M) while excluding FY2020 (-$7.5M NI) — both are halves of the same COVID filing-deadline distortion (April 2020 deadline moved to July 2020, shifting revenue out of April-ending FY2020 into FY2021). Ex-FY2021, the FY2022-25 average is $635.6M, not $646M. Prior model's 3% base growth also contradicted its own flat-to-declining aggregate series (687.9, 633.9, 614.5, 653.4, 640.6). SCENARIOS (10-yr explicit stage + Gordon terminal, net debt subtracted, 124M diluted shares): BEAR $40.80 — OE0 $600M, g 0%, r 10.5%, terminal g 1.0%, net debt $900M (haircuts peak-seasonal June-30 cash; HRB burns cash Jul-Dec and draws the revolver, and net debt was $624M at 3/31/26 vs $510M at 6/30/25). BASE $68.70 — OE0 $650M, g 2.5%, r 9.5%, terminal g 2.0%, net debt $650M. BULL $93.40 — OE0 $690M (guidance-based), g 4.0%, r 9.0%, terminal g 2.5%, net debt $600M. Terminal value is ~50% of base-case EV, which is the main model risk given AI substitution potential in the core service. REVERSE DCF: at $53/share the market implies roughly 0.4% perpetual growth in owner earnings at a 9.5% discount rate — a low bar and the strongest bull argument. Valuation screens at ~8.6x guided FY2027 adjusted EPS with a 3.5% dividend yield. COMPETITIVE UPDATE (absent from prior analysis): the administration suspended IRS Direct File and it was unavailable for the 2026 filing season, removing a material government-competition risk the prior DCF implicitly penalized. OBBBA added tax-code complexity, which favors assisted preparers. HRB posted a third consecutive year of assisted market share improvement and reported AI Tax Assist usage up 152% since 2023 (1.91M client messages this season, +85% YoY); CNET named it Best Overall Tax Service and Best Use of AI for 2026. Long-run AI disintermediation of assisted tax prep remains the central bear thesis, but FY2026 evidence ran the other way. PRICE CONTEXT: HRB closed near $30.02 on 5/6/2026 (roughly 44% of base case — a level below the margin-of-safety price) and has since rallied to ~$53. 52-week range $28.16-$58.67. The prior analysis's recommendation at $53.65 sat above its own computed margin-of-safety price of $52.60, a conclusion that did not follow from its own arithmetic. CONCLUSION: fairly valued to modestly cheap at ~$53, which is above the margin-of-safety price. Screens passed: no China VIE, no cannabis, no crypto, no shell characteristics, no going-concern risk. Balance sheet: total debt ~$1.49B against ~$975M cash (estimated). CAVEAT: FY2026 capex, business-acquisition spend, and year-end net debt are ESTIMATED from 9M FY2026 XBRL plus the 8/11/2026 earnings release. The FY2026 10-K was not yet shredded into xbrl_values (cik.xbrl_data_last_retrieved = 2026-08-13). Re-run once FY2026 annual data is loaded.