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Bear Of The Day: Bright Horizon Family Solutions (BFAM)

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Bright Horizons Family Solutions (BFAM - Free Report) has slipped to a Zacks Rank #5 (Strong Sell) and it is the Bear of the Day today.  As much as this is the Bear, it is also a chance to look at a stock that has been thrashed due to the outbreak.  Most of us believe that the virus will be defeated and things will get back to normal so looking at a name like this is good exercise.

Description

Bright Horizons Family Solutions Inc. is engaged in providing employer-sponsored child care, early education and work/life solutions. Its employer-sponsored child care programs include child care and early education centers, infant/toddler/preschool care and education, full and part-time child care, kindergarten, school-age programs, summer camps and back-up care. Bright Horizons manages child care centers for corporations, hospitals, universities and government agencies The Company operates primarily in North America, Europe and India. Bright Horizons Family Solutions Inc. is based in Watertown, Massachusetts.

Recent Earnings

I see a good earnings history here with 3 of the last 4 quarters coming in ahead of the Zacks Consensus Estimate.  The lone miss was two quarters ago and it was a miss of only a penny.  

For the most part, this stock has a very good earnings history.

Estiamte Revisions

The main reason a stock has its Zacks Rank move is due to earnings estimate revisions.  In the case of BFAM, the estimates are moving the wrong way.

The full year 2020 estimate has moved from $4.15 to $3.22 over the last seven days.  Estimates tend to lag movements in the stock price.

The 2021 numbers also took a hit, but not nearly as big.  The 2021 Zacks Consensus Estiamte moved from $4.70 to $4.52.

Those negative revisions helped push the Zacks Rank down to the lowest level.

Valuation

At 24x forward earnings, BFAM isn't cheap even as the stock looks to be cut in half.  Last quarter we saw growth of about 9%, but the outbreak is likely to cause some ugly growth numbers in the next two earnings reports.  I see a price to book of 5x which is pretty rich given any market environment... and a price to sale of 2.4x which is also somewhat high.

Margins are holding steady over the last 3 quarters with the operating marking in the 9's and the net margin in the high 8's -- but improvement is need to justify the big multiplies on this stock.

Chart

 

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