HealthEquity, Inc. ( HQY Quick Quote HQY - Free Report) has been gaining from its series of buyouts and collaborations over the past few months. A solid performance in the first quarter of fiscal 2022 and strength in Health Savings Accounts (“HSA") also buoy optimism on the stock. However, data security issues and a tough competitive landscape are major downsides.
Over the past year, this Zacks Rank #2 (Buy) stock has gained 24.1% compared with the 14.4% growth of the
industry and 38.1% rise of the S&P 500.
The renowned provider of technology-enabled services platforms for healthcare savings and spending decisions has a market capitalization of $6.42 billion. The company projects 14.5% growth for the next five years and expects to witness continued improvements in its business. HealthEquity surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 24.43%.
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Let’s delve deeper.
Strong Q1 Results: HealthEquity’s better-than-expected results in first-quarter fiscal 2022 instill confidence in the stock. The top line benefited from robust contributions from Custodial and Interchange revenues. In addition to HSA, the company offers health reimbursement arrangement to regional employers. HealthEquity continued to gain from the acquisition of WageWorks, which was completed in August 2019. The company raising its fiscal 2022 financial outlook despite pandemic-led business challenges buoys optimism on the stock. Strength in HSA: HealthEquity’s total number of HSAs, as of Apr 30, 2021, demonstrated robust year-over-year growth. Additionally, total Active HSA assets and total Accounts as of Apr 30, 2021 were also up year over year, raising our optimism on the stock. This uptick included 6.9 million Consumer Direct Benefits as well. Acquisitions and Partnerships: HealthEquity has been engaged in a series of buyouts and collaborations over the past few months, buoying our optimism. The company, in April, entered into a definitive agreement with Fifth Third Bank, National Association to transition custodianship of Fifth Third’s HSA portfolio to HealthEquity. The same month, HealthEquity entered into a definitive agreement to acquire Further, a renowned provider of HSA and consumer-directed benefit administration services.
The company, in March, announced the acquisition of Luum, aimed at strengthening the former’s commuter offering.
However, HealthEquity’s dealings with high level of sensitive personal data and information raise our apprehension. The company’s ability to ensure the security of its technology platforms, and thus sensitive customer and partner information, is critical to its operations. Any disclosure or other loss of information could result in legal claims or proceedings leading to liability. This could disrupt HealthEquity’s operations and the services it provides to its clients, along with damaging its reputation, thus adversely affecting business.
HealthEquity faces stiff competition in the rapidly evolving and fragmented Medical Services market. The company’s success substantially depends on consumers’ willingness to increase their use of HSAs and other CDBs, and its ability to increase engagement and to demonstrate the value of its services to existing and potential clients. If HealthEquity’s existing clients do not recognize or acknowledge the benefits of its services, then the market for the same might develop at a slower pace than expected, thus adversely affecting operating results.
HealthEquity has been witnessing a negative estimate revision trend for fiscal 2022. Over the past 90 days, the Zacks Consensus Estimate for its earnings per share has moved 0.7% south to $1.47.
The Zacks Consensus Estimate for second-quarter fiscal 2022 revenues is pegged at $185.8 million, suggesting a 5.5% rise from the year-ago reported number.
Other Key Picks
A few other top-ranked stocks from the broader medical space are
Veeva Systems Inc. ( VEEV Quick Quote VEEV - Free Report) , AMN Healthcare Services Inc ( AMN Quick Quote AMN - Free Report) and National Vision Holdings, Inc. ( EYE Quick Quote EYE - Free Report) .
Veeva Systems’ long-term earnings growth rate is estimated at 15.8%. The company presently carries a Zacks Rank #2. You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AMN Healthcare’s long-term earnings growth rate is estimated at 6.5%. It currently carries a Zacks Rank #2.
National Vision’s long-term earnings growth rate is estimated at 23%. It currently sports a Zacks Rank #1.
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