HealthEquity (HQY), the US’ largest well being financial savings account (HSA) custodian, will launch its fourth-quarter outcomes on March 19. The corporate is predicted to report a year-over-year rise in earnings and income. Due to this fact, ought to traders think about shopping for the inventory forward of its earnings? Learn on to be taught my view.
HealthEquity, Inc. (HQY) is scheduled to report its fourth-quarter and full-year outcomes on March 19. Wall Road expects the corporate’s fourth-quarter EPS and income to extend 57.7% and 10.7% year-over-year to $0.58 and $258.90 million, respectively. On this piece, I’ve mentioned why it could possibly be sensible to attend for a greater entry level within the inventory regardless of the anticipated rise in income and earnings.
HQY has a stellar earnings historical past, having overwhelmed the consensus EPS estimate in every of the trailing 4 quarters. For the fiscal yr ended January 31, 2024, HQY revised its outlook, with income anticipated between $995 million to $1 billion. The corporate’s non-GAAP web earnings and EPS are actually anticipated to be between $191 million and $195 million and between $2.20 and $2.24, respectively.
Its adjusted EBITDA is now anticipated to be between $364 million and $369 million. As of January 31, 2024, its complete variety of HSAs rose 9% yr over yr to eight.69 million. Its Complete Accounts rose 5% year-over-year to fifteen.70 million, and HSA Property grew 14% year-over-year to $25.21 billion. HQY’s inventory has declined 0.2% over the previous month and gained 46.1% over the previous yr to shut the final buying and selling session at $81.44.
Right here’s what you would possibly wish to think about forward of its upcoming earnings launch:
Strategic Acquisition
On September 19, 2023, HQY and Conduent Integrated introduced that that they had entered right into a definitive settlement to switch Profit Pockets’s Well being Financial savings Account (HSA) portfolio to HealthEquity. Roughly 665,000 buyer accounts and $2.7 billion of BenefitWallet’s HSA property can be transferred to HealthEquity.
The switch of BenefitWallet HSA property to HQY is predicted to shut in a number of tranches through the first half of 2024, topic to regulatory and different circumstances.
Sturdy Financials
HQY’s complete income for the third quarter ended October 31, 2023, elevated 15.3% year-over-year to $249.22 million. Its earnings from operations rose 457.4% over the prior-year quarter to $30.89 million. The corporate’s adjusted EBITDA elevated 30.4% year-over-year to $95.65 million.
Additionally, its non-GAAP web earnings elevated 61% over the year-ago quarter to $52.18 million. As well as, its non-GAAP EPS got here in at $0.60, representing a rise of 57.9% year-over-year.
Commenting on its third quarter efficiency, HQY’s President and CEO Jon Kessler mentioned, “Group Purple delivered one other quarter of year-over-year double-digit income development plus margin growth. Our outlook displays our potential to maintain that development by remaining targeted, along with our companions and shoppers, on the wants of the healthcare shopper.”
Favorable Analyst Estimates
Analysts anticipate HQY’s EPS for fiscal 2024 and 2025 to extend 62.4% and 28.2% year-over-year to $2.21 and $2.83, respectively. Its income for fiscal 2024 and 2025 is predicted to extend 15.6% and 15.7% year-over-year to $995.78 million and $1.15 billion, respectively.
Stretched Valuation
By way of ahead EV/EBITDA, HQY’s 21.07x is 61.1% increased than the business common of 13.08x. Likewise, its 7.62x ahead EV/Gross sales is 108.5% increased than the business common of three.65x. Its 36.87x ahead non-GAAP P/E is 84.8% increased than the business common of 19.95x.
Combined Profitability
By way of the trailing-12-month web earnings margin, HQY’s 3% compares to the adverse 4.78% business common. Likewise, its 26.87% trailing-12-month EBITDA margin is 379.8% increased than the business common of 5.60%. Moreover, the inventory’s 20.62% trailing-12-month levered FCF margin is considerably increased than the business common of 0.78%.
HQY’s 0.16% trailing-12-month Capex / Gross sales is 96.1% decrease than the 4.06% business common. Likewise, its 0.32x trailing-12-month asset turnover ratio is nineteen.8% decrease than the 0.39x business common. Moreover, the inventory’s 0.94% trailing-12-month Return on Complete Property compares to the adverse business common of 30.60%.
POWR Rankings Replicate Uncertainty
HQY has an total score of C, equating to a Impartial in our POWR Rankings system. The POWR Rankings are calculated by contemplating 118 various factors, every weighted to an optimum diploma.
Our proprietary score system additionally evaluates every inventory based mostly on eight distinct classes. HQY has a C grade for High quality, according to its combined profitability. It has a D grade for Worth, which is in sync with its stretched valuation.
HQY’s inventory is buying and selling beneath its 10-day shifting common however above its 200-day shifting common, justifying its C grade for Momentum.
HQY is ranked #7 out of 11 shares within the Medical – Well being Insurance coverage business. Click on right here to entry HQY’s Progress, Stability, and Sentiment scores.
Backside Line
HQY has guided for a robust finish to the fourth quarter, with gross sales development pushed by increased yield on HSA money. This helped the corporate elevate and slender its fiscal 2024 steering. The corporate additionally maintained its fiscal 2025 outlook, which relies on an estimated common HSA money yield of about 3%.
Nonetheless, its yield would possibly face a minor headwind from its client-held funds. HQY seeks to double its non-GAAP web earnings per share over the following three fiscal years as HSA money yields proceed to rise and margins proceed to broaden. Moreover, HQY will profit from the acquisition of BenefitWallet’s HSA portfolio, which is predicted to shut in fiscal 2025. The acquisition’s optimistic impacts are anticipated to start out by the second quarter of fiscal 2025.
Regardless of HQY’s strong development prospects, the inventory trades at an costly valuation. Given its combined profitability and momentum, it could possibly be sensible to attend for a greater entry level within the inventory.
How Does HealthEquity, Inc. (HQY) Stack Up In opposition to Its Friends?
HQY has an total POWR Ranking of C, which equates to a Impartial score. You could try these A and B-rated shares inside the Medical – Well being Insurance coverage business: The Cigna Group (CI), Centene Company (CNC), and Molina Healthcare, Inc. (MOH). To discover extra Purchase-rated Medical – Well being Insurance coverage shares, click on right here.
What To Do Subsequent?
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HQY shares rose $0.55 (+0.68%) in premarket buying and selling Monday. 12 months-to-date, HQY has gained 22.84%, versus a 7.26% rise within the benchmark S&P 500 index throughout the identical interval.
In regards to the Writer: Dipanjan Banchur
Since he was in grade college, Dipanjan was within the inventory market. This led to him acquiring a grasp’s diploma in Finance and Accounting. At the moment, as an funding analyst and monetary journalist, Dipanjan has a robust curiosity in studying and analyzing rising developments in monetary markets.
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