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Stock Strategist Industry Reports

Higher Returns for Our Top Personal Services Pick

We think there's a winner in the tax preparation industry.

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The personal services industry encompasses a wide array of businesses. Under this grouping we include firms that service consumers but don't seem to fit among the traditional consumer-related names. In this article we will focus on the tax preparation services industry. Over the last few years a seismic shift has occurred that has left the long-time dominant players within this industry scrambling to maintain their market-leading positions.

 H&R Block (HRB) and  Jackson Hewitt (JTX) have led the individual tax preparation industry for decades. However, the market share for both firms has taken a material hit in the last few years as increased competition from traditional and nontraditional rivals takes its toll. This increased competition has given tax preparation customers greater choices and lower prices and created a secular head wind for both H&R Block and Jackson Hewitt. The downturn in the employment market has also been taxing as lower wage earners, a significant portion of the customer base for both firms, have been disproportionately affected by the losses within the labor market. This dynamic has and will continue to mean a lower number of tax filings over the near term. Both H&R Block and Jackson Hewitt have struggled to cope with these significant obstacles, and the competitive dynamic will most likely continue to change over the next several years. However, the degree to which each firm is affected is dependent upon their competitive positions. Here we look at the major challenges both companies currently face and pick the firm we believe is best-positioned to overcome these challenges and reward investors.

Vishnu Lekraj does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.