June 5, 2009 / 1:46 PM / 9 years ago

UPDATE 2-Jackson Hewitt soars on CEO appointment

(Recasts; adds analysts’ comments, details, updates stock activity)

By Anurag Kotoky

BANGALORE, June 5 (Reuters) - Shares of Jackson Hewitt Tax Service Inc JTX.N soared as much as 47 percent Friday, a day after the tax preparer appointed Harry Buckley, former head of bigger rival H&R Block Inc (HRB.N), as its chief executive and engaged Goldman Sachs to examine strategic alternatives.

“The hiring of an investment bank to pursue strategic alternatives creates a call option over the coming months that a transaction could be announced,” Oppenheimer & Co analyst Scott Schneeberger said in a note.

He upgraded the No. 2 U.S. tax preparer’s stock to “outperform” from “perform.”

While a change in management had been anticipated, Schneeberger said his checks with franchisees showed an encouraging boost to morale.

“Most important is the newly introduced potential for renewed hope in Jackson Hewitt’s franchisee base with ‘a proven tax guy’ at the helm,” he said. He set a $7.50 target on the stock.

Stephens Inc analyst David Burtzlaff told Reuters that Buckley’s appointment was a positive move by the company, which would give it a better chance to turn around. He has an “equal weight” rating on the stock.

Oppenheimer’s Schneeberger said the U.S. tax regulator’s announcement on Thursday of pending increased regulation of the industry was good news for tax preparation companies.

The Internal Revenue Service will recommend ideas to Treasury Secretary Timothy Geithner to “better leverage the tax return preparer community to increase taxpayer compliance and ensure high ethical standards of conduct for paid tax preparers,” IRS Commissioner Douglas Shulman said on Thursday. [ID:nN04207611]

The tax preparer community is diverse and includes some entities that operate under federal guidelines, but only if they have to come before the IRS. These include so-called enrolled agents, certified public accountants and lawyers.

“We view this as significantly positive for the already closely monitored larger preparers such as Jackson Hewitt, H&R Block, and TurboTax parent Intuit Inc (INTU.O), as unethical practices of smaller and currently under-regulated participants would be deterred, thus weakening their competitiveness,” Oppenheimer’s Schneeberger said.

Jackson Hewitt said last week its network of franchised and company-owned offices prepared 13 percent fewer tax returns in 2009, hurt by a heightened awareness of price and value among first-season customers, and a significantly higher level of encroachment from online filing.

Shares of the Parsippany, New Jersey-based company were up 40 percent at $6.00 early Friday afternoon on the New York Stock Exchange. The shares traded as high as $17.80 last September, but fell to a 52-week low of $2.80 in March. (Editing by Ratul Ray Chaudhuri)

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