S&P Says Avoid H&R Block

Also: Analysts' opinions on Computer Sciences and National Commerce

H&R Block (HRB ): Maintains 2 STARS (avoid)

Analyst: Michael Jaffe

H&R Block reaffirmed the fiscal 2003 (Apr.) earnings per share guidance of $3.10-$3.25. However, its 2.9% drop in tax returns prepared through March 15 was below plan, and H&R expects to meet its goals through higher fees per client and cost controls. Its shares are trading a bit below market at 14 times S&P's $2.90 fiscal 2004 earnings per share forecast. But S&P sees lackluster trends for H&R for the coming year, with volume growth seeming more difficult in the mature tax business and refinancing likely to slow in the mortgage business. Adding in uncertainties about refund anticipation lawsuits, S&P would put funds elsewhere.

Computer Sciences (CSC ): Maintains 4 STARS (accumulate)

Analyst: Richard Stice, Amrit Tewary

In a press release Wednesday night, the company addressed issues related to its accounting methods. Computer Sciences explained that the decrease in selling, general, and administrative costs as a percentage of sales in recent years was not from a change in its outsourcing contract cost capitalization policy and pattern, but rather from a more favorable business mix and improved operating performance. S&P thinks the company's accounting treatment of long-term contracts is in compliance with GAAP and common within its industry. At a 15% discount to S&P's intrinsic value calculation, S&P thinks shares as attractive.

National Commerce Financial (NCF ): Downgrades to 4 STARS (accumulate) from 5 STARS (buy)

Analyst: Evan Momios

Shares are off Thursday on heavy volume as the company says it will miss first quarter earnings per share estimates because of a litigation settlement charge of six cents to seven cents per share. More importantly, it sees first quarter net interest margin narrowing 20-22 basis points and expects continued weakness in loan growth in the tough economy. S&P is cutting the 2003 operating earnings per share estimate to $1.64 from $1.76. S&P's 2003 cash operating earnings per share estimate (adding back core deposit amortization expense) is $1.83. S&P thinks shares would be fairly valued at 13 times the 2003 cash operating earnings per share, or about $24.

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