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HealthEquity (HQY) Q1 Earnings and Revenues Beat Estimates

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HealthEquity Inc (HQY - Free Report) reported earnings of 19 cents per share in the first quarter of fiscal 2018, higher than the Zacks Consensus Estimate of 16 cents. The figure was higher than the year-ago earnings of 14 cents on revenue and margin expansion.

Stock Performance

The price performance of the stock has been favorable over the last three months. HealthEquity rose 11.19%, while the Zacks classified Medical Services sub-industry declined almost 3.01%.
 

HealthEquity, Inc. Price, Consensus and EPS Surprise

Quarter Details

Revenues came in at $55.4 million, reflecting an increase of 26% year over year and also surpassed the Zacks Consensus Estimate of $55.0 million. Service (41% of total revenues), Custodial (35%) and Interchange (24%) revenues were up 18%, 40% and 21% year over year, respectively.

The growth in service revenues were driven by year-over-year increase in average health savings account (HSA) which was offset by a decrease in service revenue per average HSA. The decline was led by the company’s strategy of offering lower service fees per HSA for more volume from network partners, particularly with higher balances. HealthEquity stated that the profitability of an HSA in this business model increases as balances grow.

The growth in Custodial revenues was supported by higher average daily cash AUM. The strong year-over-year growth in Interchange revenues was driven by increased card spending and more favorable interchange terms (higher spend volume).

As of Apr 30, 2017, total number of HSA members – for which the company serves as a non-bank custodian – increased 26% year over year to 2.8 million. Total assets under management (AUM) surged 28% year over year to $5.2 billion.

Financial Condition

As of Apr 30, 2017, the company had $195.6 million of cash, cash equivalents and marketable securities without any outstanding debt. This compares favorably with $180.4 million in cash, cash equivalents and marketable securities and no outstanding debt as of Jan 31, 2017.

Guidance

For fiscal 2018 (ending Jan 31, 2018), HealthEquity forecasts revenues in the range of $222–$227 million. Net income is forecasted in the range of $33.0 million to $37.0 million, resulting in a net income per diluted share range of 62 cents to 67 cents. Adjusted EBITDA outlook is estimated in the band of $78.0 million to $83.0 million. The business outlook for the fiscal ending Jan 31, 2018 assumes a projected effective income tax rate of approximately 38%.

Zacks Rank and Key Picks

Currently, HealthEquity has a Zacks Rank #3 (Hold).

Few better-ranked medical stocks are Align Technology, Inc. (ALGN - Free Report) , Inogen, Inc. (INGN - Free Report) and Accelerate Diagnostics, Inc. (AXDX - Free Report) . Align Technology and Inogen sport a Zacks Rank #1 (Strong Buy), while Accelerate Diagnostics carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Align Technology has an expected long-term adjusted earnings growth of almost 22.8%. The stock roughly added 45.7% over the last three months.

Inogen has a long-term expected earnings growth rate of 17.5%. The stock has solid one-year return of around 79.7%.

Accelerate Diagnostics has expected long-term adjusted earnings growth of 30%. The stock has added 14% roughly over last three months.

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