Yahoo Finance Here's Why You Should Retain HealthEquity (HQY) Stock for Now
HealthEquity, Inc. HQY has been gaining from its business model and strategy. The optimism led by a solid first-quarter fiscal 2025 performance and strength in Health Savings Accounts (HSA) are expected to contribute further. However, stiff competition and the possibility of unsuccessful acquisitions are major downsides.
So far this year, this Zacks Rank #3 (Hold) company has gained 24.8% compared with the 4.7% rise of the industry and the S&P 500’s 14.6% growth.
This renowned provider of technology-enabled services platforms for healthcare savings and spending decisions has a market capitalization of $7.2 billion. The company projects 23.6% growth for the next five years and expects to witness continued improvements in its business. HealthEquity’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average earnings surprise being 17.2%.
Let’s delve deeper.
Business Model and Strategy: We are optimistic about HealthEquity’s business model, which is based on a business-to-business-to-consumer distribution strategy. The company believes that there are significant opportunities to expand the scope of its services to its current clients.
Per HealthEquity’s management, it has a diverse distribution footprint to attract new clients and network partners. Its sales force calls on enterprise and regional employers in industries across the United States, as well as potential network partners from among health plans, benefits administrators and retirement plan record keepers.
In May 2024, HealthEquity completed the acquisition of the BenefitWallet HSA portfolio from Conduent Business Services, LLC. The agreement contemplated a transfer of approximately 665,000 customer accounts and their approximately $2.7 billion of HSA Assets in three separate tranches during the first and second quarters of fiscal 2025 for an aggregate purchase price of $425 million. Management’s expectations of the impacts of the BenefitWallet HSA portfolio acquisition raise optimism.
Strength in HSA: HealthEquity’s total number of HSAs, as of Apr 30, 2024, rose 13% year over year. HealthEquity reported 665,000 HSAs with investments as of Apr 30, up 20% year over year. Total Accounts, as of Apr 30, 2024, increased 6.7% year over year. This uptick included total HSAs and 6.9 million other consumer-directed benefits (CDB). Total HSA assets at the end of Apr 30, were up 22% year over year. This included HSA cash and HSA investments.
Strong Q1 Results: HealthEquity exited first-quarter fiscal 2025 with better-than-expected results. The company witnessed solid top-line and bottom-line performances in the reported quarter. The top line benefited from robust contributions from all its revenue sources. Solid growth in HSAs also drove the top line. The solid uptick in total HSA assets in the reported quarter is promising. The expansion of both margins also bodes well.
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Downsides
Integration of Acquisitions Maybe Unsuccessful: The success of HealthEquity’s recent acquisitions depends partly on its ability to realize the anticipated business opportunities by combining the operations of the acquired entities with its business efficiently and effectively. The integration of HealthEquity’s acquisitions may be longer and costlier than anticipated and could result in the disruption of its ongoing and acquired businesses, among others, as well as harm its financial performance.
Stiff Competition: HealthEquity faces stiff competition in the Medical Services market, which is a rapidly evolving and fragmented one. The company’s success depends to a substantial extent on the willingness of consumers to increase their use of HSAs and other CDBs, and its ability to increase engagement and demonstrate the value of its services to existing and potential clients.
Estimate Trend
HealthEquity has been witnessing a positive estimate revision trend for fiscal 2025. Over the past 30 days, the Zacks Consensus Estimate for its earnings per share has improved 10 cents to $3.01.
The consensus estimate for second-quarter revenues is pegged at $284.2 million, suggesting a 16.7% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space that have announced quarterly results are DaVita Inc. DVA, Universal Health Services UHS and Elevance Health, Inc. ELV.
DaVita, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 13.6%. DVA’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 29.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
DaVita’s shares have gained 46.6% compared with the industry’s 15.6% rise in the past year.
Universal Health Services has an Earnings ESP of +2.91% and a Zacks Rank #2 at present. UHS has an estimated earnings growth rate of 30.5% for 2024.
UHS’ earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 8.12%.
Elevance Health’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 2.77%. The consensus estimate for ELV’s 2024 earnings indicates a rise of 12.4% from the year-ago figure. The consensus mark for revenues implies an improvement of 1.1% from the year-ago reported figure.
ELV carries a Zacks Rank #2 at present.
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Universal Health Services, Inc. (UHS) : Free Stock Analysis Report
DaVita Inc. (DVA) : Free Stock Analysis Report
HealthEquity, Inc. (HQY) : Free Stock Analysis Report
Elevance Health, Inc. (ELV) : Free Stock Analysis Report
