Blucora: New Focused Growth, Capital Allocation

Transforming corporate brands and core businesses is not always easy, but Blucora (BCOR) may have found an answer.

The company was founded during the ancient days of the Internet (25 years ago) with its InfoSpace business. Through various acquisitions and divestitures, the company has narrowed its focus to two distinct but synergistic businesses.

The company operates through the Wealth Management and Tax Preparation segments. The Wealth Management segment (Advantax) provides tax-focused wealth management solutions for financial advisors, tax preparers, CPA firms, and its clients. The Tax Preparation segment, with its popular TaxAct product, focuses on digital tax preparation solutions for consumers, small business owners, and tax professionals.

I am bullish on BCOR based on attractive valuation and renewed growth focus. (See Analysts’ Top Stocks on TipRanks)

Wealth Management Division

This segment works in three separate professional arenas:

Wealth Management: Over 3,750 independent financial advisors offer their clients tax-smart wealth management advice from various Advantax products and solutions.

Financial Planning: This team partners exclusively with Tax Professionals such as CPAs who want to expand the financial services they offer clients by adding tax-smart wealth management services.

Retirement Services: This segment works with CPAs to offer their clients customized employee retirement plans. These services help business owners minimize retirement plan administration, reduce fiduciary risk, and provide personalized employee education.

TaxAct Software

Blucora acquired TaxAct in 2012 and has since grown to one of the top software programs available today. Money Magazine called it the best tax preparation program for small businesses in 2021.

In 2020, TaxAct was used by approximately 3.2 million consumers to e-file their taxes directly, as well as another 2.1 million professional e-files through approximately 20,000 tax professionals who used TaxAct to prepare and file taxes for their clients.

TaxAct has positioned itself as a simple offering despite covering a comprehensive tax filing experience, at a discounted price to market leaders. The service offers the largest tax refund guarantee as well as pro tips usually only found at high-end providers.

Financial Review

Most of the Wealth Management business was acquired in 2020 and 2021 so this company’s transformation and focus on two core segments is fairly recent.

Tax preparation revenues were $208.8 million in 2020 and estimates for this year are approximately $225 million. Segment operating income in 2020 was $49.6 million and the company expects $81 million this year.

The larger Wealth Management segment generated $546.2 million in revenues in 2020 and that is expected to increase to $647 million this year. Operating income was $72.2 million in 2020 and expected to increase to approximately $82 million this year.

Eighty to ninety percent of the revenues in this business are considered recurring revenues, such as advisory and asset based fees.

Last year’s net profits were marred by large goodwill write-downs associated with transformative acquisitions in recent years. There are no material write-downs expected this year.

Balance Sheet, Dividend

As of Q3 2021, Blucora had $185 million in cash on the balance sheet and $553 million in debt as a result of recent acquisitions. However, the leverage ratio remains conservative at approximately 2x based on forecasted EBITDA of $135 million to $139 million.

The company does not pay a dividend, although based on expected free cash flow and non-GAAP earnings estimates of $1.60 for 2021, it is certainly capable of paying a dividend.

Valuation

2021 EPS guidance issued by the company on November 4 is in the $1.65-$1.73 range. Blucora has one analyst EPS estimate by Barrington Research which is $1.72. That puts the company at less than 10x earnings for this calendar year.

This is a significant discount to other wealth management services companies such as LPL Financial (LPLA) which trades at 17.6x forward earnings.

Wall Street’s Take

Turning to Wall Street, BCOR has a Moderate Buy consensus rating based on one Buy rating assigned in the past three months. At $23, the average BCOR price target implies 45% upside potential.

Disclosure: Disclosure: At the time of publication, Tom Kerr did not own shares of any stocks mentioned above.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >