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H&R Block, Inc. (HRB) Align Technology, Inc. (ALGN)

Sundeep Kutumbaka and George Bocchetti. H&R Block, Inc. (HRB) Align Technology, Inc. (ALGN). H&R Block: Recommendation. Buy: Limit at $18 Sell: Stop at $20, Limit at $22. H&R Block: Background. Provides tax, banking, accounting and business consulting services and products

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H&R Block, Inc. (HRB) Align Technology, Inc. (ALGN)

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  1. Sundeep Kutumbaka and George Bocchetti H&R Block, Inc. (HRB)Align Technology, Inc. (ALGN)

  2. H&R Block: Recommendation • Buy: Limit at $18 • Sell: Stop at $20, Limit at $22

  3. H&R Block: Background • Provides tax, banking, accounting and business consulting services and products • Prepares 1/7 tax returns • Had an office within 5 miles of most Americans • Employs more than 110,000 • Has helped clients obtain nearly $30 billion in tax refunds, credits • Founded in 1955 • Headquartered in Kansas City, MO

  4. H&R Block: What They Do • Tax Services = 74.3% of revenue • Provides tax return preparation services in Unites States, Canada, Australia • Markets TaxCut income tax preparation software • Business Services = 22% of revenue • RSM McGladrey, Inc. (RSM) provides accounting, tax and business consulting services • Consumer Financial Services = 3.5% of revenue • provides retail banking offerings through HRB Bank

  5. H&R Block: Basic Numbers • Current Price: $18.08 • P/E Ratio: 12.07 • Beta: 0.49 • Dividend/ Yield: $0.15/ 3.32% • EPS: $1.50 • 52-Week Low: $13.73 • 52-Week High: $25.94 • Market Cap: $6.60B • Institutional Ownership: 85% Taken from http://www.google.com/finance?q=hrb as of 10/04/09

  6. H&R Block: 1 Month

  7. H&R Block: 3 Months

  8. H&R Block: 6 Months

  9. HRB vs. S&P 500: 1 Month

  10. HRB vs. Competitors, 1 Month (HRB vs JTX, GTAX, INTU)

  11. HRB vs. Competitors, 3 Months (HRB vs JTX, GTAX, INTU)

  12. H&R Block: Earnings Report • Loss of $130.6 million, or 39 cents per share • Vs. loss of $128.4 million, 39 cents per share a year before • Vs. estimates of loss of 37 cents per share • Typically lose in Q1, Q2 and gain in Q3, Q4 • Taxes are seasonal: most revenue from Jan-April • Exacerbated by increase in Tax Services expense • Reaffirmed guidance for FY10 • Upgraded September 8th, 4 days after release

  13. H&R Block: Reasons to Buy • Largest provider of tax preparation services in the world • Low in their yearly cycle • Just beginning to gain • Respected, trusted brand name • Compared to unknown competition • Unstoppable business • All adults have to file a tax return

  14. H&R Block: Reasons to Buy • Even small tax changes increase business • Multiple markets: • US, Canada, Australia • Multiple businesses: • Tax services, tax software, banking, business consulting • Cutting down excess businesses • Investment advisement, subprime mortgages

  15. H&R Block: Reasons to Buy • Trying for new public image • Revamped, professional storefront • More serious advertising campaign • Multiple platforms • Shareholders at last meeting applauded demo ad • Reduced prices for low-income, young clients • Honor federal college credits • Hiring nearly 15,000 tax professionals

  16. H&R Block: Competition • Jackson Hewitt Tax Service, Inc (JTX) • Market cap of only 135M • Less diversified, smaller client base, smaller market • Downgraded at Oppenheimer in August • Drop of 13% in tax return volume in 2009 season • Gilman Ciocia, Inc (GTAX) • Serves mostly middle and upper class • Only in New Jersey, New York, and Florida • Intuit, Inc (INC) • TurboTax software, but no walk-in offices

  17. Align Technology: Recommendation • Our recommendation: Watch and buy on pull back, at Limit of $15 • Sell: Stop at $19, Limit at $22

  18. Align Technology: Background • Designs, manufactures, markets Invisalign • A method for treating the misalignment of teeth • Alternative to visible, cumbersome braces • Invisalign is regulated by FDA as a Class II medical device • Incorporated in 1997 • First sales of Invisalign to orthodontists in 1999 • By late 2001, manufactured one million aligners • Headquarters in Santa Clara, CA

  19. Align Technology: What They Do • The Invisalign system is comprised of • ClinCheck: creation of digital treatment plans • manufacturing of customized Invisalign aligners • Sells Invisalign directly to consumers, dentists, and/or orthodontists • Also sell retainers, ancillary products • Cleaning material, adjustment tools for Invisalign • Operates in North America, Europe, Asia-Pacific, Latin America, and Japan

  20. Align Technology: Product Line-Up • Invisalign Full • Complete, personal treatment • Invisalign Express • Pre-made for various categories of treatment • Invisalign Teen • Aligner wear indicator to gauge patient compliance • Retention • Vivera retainers for Invisalign/non-Invisalign patients • Ancillary Products • Support Invisalign

  21. Align Technology: Current Status • To date • trained more than 56,700 doctors • manufactured more than 44 million unique Invisalign aligners • started more than 1,000,000 patients in treatment • reached $1.5 billion in cumulative net revenues • complied IP portfolio of more than 160 patents • provides exclusive education events at more than 60 universities worldwide

  22. Align Technology: Basic Numbers • Current Price: $15.82 • P/E Ratio: 13.61 • Beta: 2.12 • Dividend/ Yield: N/A • EPS: $1.16 • 52-Week Low: $4.88 • 52-Week High: $16.45 • Market Cap: $1.05B • Institutional Ownership: 88% Taken from http://www.google.com/finance?q=algn as of 10/15/09

  23. ALGN: 1 Month Chart

  24. ALGN: 3 Months Chart

  25. ALGN: 6 Months Chart

  26. ALGN vs NASDAQ: 6 Months

  27. ALGN vs Competitors, 3 Months(ALGN vs MMM, XRAY)

  28. ALGN vs Competitors, 6 Months(ALGN vs MMM, XRAY)

  29. Align Technology: Earnings Report • Q2 Earnings Report released July 232 • EPS of $0.072 • Compared to estimate of $0.012 • Revenue of $76.3 million2 • Compared to estimate of $69.4 million2 • 27% increase in international revenue2 • Share price rose 14% after release2 • Predicted Q3 earnings in current range2

  30. ALGN: Quarterly Earnings Per Share

  31. Align Technology: Reasons to Buy • On a rally • Varied product lineup • Multiple markets • North America, Europe, Asia-Pacific, Latin America, and Japan • Over a million existing clients • And growing

  32. Align Technology: Reasons to Buy • Upgraded to Buy at Northcoast on Oct 1 • Increase in year-over-year case starts • Buy rating reaffirmed at Brean Murray • Recently released new features • Based on customer research and treatment data • Make Invisalign effective for more bite types

  33. Align Technology: Reasons to Buy • Ended patent litigation with Danaher Corporation's Subsidiary Ormco Corporation • Exclusive agreement to work on combination orthodontic product • Should lead to an increase in sales • Beat estimates in last 6 earnings reports • Will probably beat again on October 22nd

  34. ALGN: Competition • 3M Company (MMM) • Diversified technology company • No specific product that competes with Invisalign • Nothing invisible • DENTSPLY International, Inc (XRAY) • A few competitive products • Not as extensive a lineup • No marketing • Not as well-known

  35. Citations ALGN: • http://www.reuters.com/finance/stocks/companyProfile?rpc=66&symbol=ALGN.O • http://www.reuters.com/article/rbssHealthcareNews/idUSBNG53802820090723 • http://www.orthodonticproductsonline.com/news/2009-09-24_01.asp • http://www.marketintelligencecenter.com/articles/962561 • http://online.wsj.com/article/BT-CO-20091001-709097.html • http://www.reuters.com/finance/stocks/keyDevelopments?rpc=66&symbol=ALGN.O&timestamp=20090817121900 • http://finance.aol.com/earnings/align-technology-inc/algn/nas/earnings-release • http://finapps.forbes.com/finapps/jsp/finance/compinfo/Earnings.jsp?tkr=ALGN • http://finance.aol.com/charts/align-technology-inc/algn/nas/classic-charts • http://www.thestreet.com/quote/ALGN/details/earnings-estimates.html • http://www.aligntech.com/Pages/About.aspx • http://www.google.com/finance?q=algn HRB: • http://www.hrblock.com/company/index.html • http://www.google.com/finance?q=hrb • http://www.reuters.com/finance/stocks/companyProfile?symbol=HRB.N&rpc=66 • http://finance.aol.com/charts/block-h-and-r-inc/hrb/nys/classic-charts • http://finance.aol.com/charts/align-technology-inc/algn/nas/classic-charts • http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=BCOM&date=20090904&id=10365317 • http://newstribune.com/articles/2009/09/04/business/118biz51blockpr09.txt • http://finance.aol.com/earnings/block-h-and-r-inc/hrb/nys/earnings-release • http://industry.bnet.com/financial-services/10003127/ceo-smyth-promises-peace-of-mind-at-hr-block-with-customer-centric-focus/ • http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=AP&date=20090908&id=10371672 • http://www.herald-dispatch.com/news/x883085341/Tax-credit-available-for-college-costs • http://www.mlive.com/news/saginaw/index.ssf/2009/09/hr_block_hiring_15000_tax_prep.html • http://www.huliq.com/1/87094/manager-keep-comcast-h-r-block-and-hasbro-radar • http://www.seattlepi.com/business/1310ap_us_hr_block_meeting.html • http://www.google.com/finance?q=OTC:GTAX • http://www.google.com/finance?q=NASDAQ:INTU • http://www.google.com/finance?q=NYSE:JTX • http://www.reuters.com/finance/stocks/companyProfile?symbol=JTX.N&rpc=66 • http://www.iii.co.uk/news/?type=afxnews&articleid=7496335&action=article • http://caps.fool.com/Blogs/ViewPost.aspx?bpid=223597&t=01003070853754792343

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