HealthEquity, Inc. (HQY Quick QuoteHQY - Free Report) is well-poised for growth in the coming quarters, courtesy of its unique investment platform. The optimism led by a solid second-quarter fiscal 2024 performance and strength in Health Savings Accounts (HSA) are expected to contribute further. However, data security issues and the complexity of regulations are major downsides.

Over the past year, the Zacks Rank #3 (Hold) stock has gained 2.8% against the 5.1% decline of the industry. The S&P 500 has witnessed 18.5% growth in the said time frame.

The renowned provider of technology-enabled services platforms for healthcare savings and spending decisions has a market capitalization of $6.22 billion. The company projects 23.5% growth for the next five years and expects to witness continued improvements in its business. HealthEquity’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average earnings surprise being 13%.

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Let’s delve deeper.

Unique Investment Platform: We are optimistic about HealthEquity’s multiple cloud-based platforms, accessed by its members online via a desktop or mobile device. Individuals can make health-saving and spending decisions and pay healthcare bills, among other activities, via these platforms. These platforms provide users access to services HealthEquity provides as well as services provided by third parties selected by HealthEquity or its Network Partners. Among other features, HealthEquity’s HSA platform has the capability to provide users with medical bills upon adjudication by a health plan, including details such as the amount paid by insurance.

Strength in HSA: HealthEquity’s total number of HSAs, as of Jul 31, 2023, rose 8.5% year over year. HealthEquity reported 574,000 HSAs with investments as of Jul 31, 2023, up 11.2% year over year. Total Accounts, as of Jul 31, 2023, were up 3.1% year over year. This uptick included total HSAs and 6.8 million other CDBs. Total HSA assets at the end of Jul 31, 2023, were up 12.9% year over year. This included HSA cash and HSA investments.

Strong Q2 Results: HealthEquity saw solid top-line and bottom-line performances in second-quarter fiscal 2024. The top line benefited from robust contributions from all its revenue sources. The expansion of both margins was also seen.

Downsides

Complexity of Regulations: HealthEquity’s business, including HSAs and many of the CDBs it administers and investment advisers and trust company subsidiaries, is subject to extensive, complex and frequently changing federal and state laws and regulations. Its subsidiary, HealthEquity Advisors, LLC, is a SEC-registered investment adviser that provides automated web-only investment advisory services. As such, it must comply with the requirements of the Advisers Act and related SEC regulations and is subject to periodic inspections by the SEC staff.

Data Security Issues: HealthEquity deals with a high level of sensitive personal data and information. Any security breaches might result in the loss of sensitive information, theft or loss of actual funds, litigation or indemnity obligations to the customers. The company’s ability to ensure the security of its technology platforms and, thus, sensitive customer and partner information is critical to its operations.

Estimate Trend

HealthEquity has been witnessing a positive estimate revision trend for fiscal 2024. Over the past 90 days, the Zacks Consensus Estimate for its earnings per share has moved 4.7% north to $2.01.

The Zacks Consensus Estimate for third-quarter fiscal 2024 revenues is pegged at $242.4 million, suggesting a 12.2% rise from the year-ago reported number.

Key Picks

Some better-ranked stocks in the broader medical space are DaVita Inc. (DVA Quick QuoteDVA - Free Report) , McKesson Corporation (MCK Quick QuoteMCK - Free Report) and Integer Holdings Corporation (ITGR Quick QuoteITGR - Free Report) .

DaVita, sporting a Zacks Rank #1 (Strong Buy) at present, has an estimated long-term growth rate of 12.7%. DVA’s earnings surpassed estimates in three of the trailing four quarters and missed once, with an average surprise of 21.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.

DaVita has gained 16.9% against the industry’s 1.6% decline over the past year.

McKesson, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 10.7%. MCK’s earnings surpassed estimates in three of the trailing four quarters and missed once, with an average of 8.1%.

McKesson has gained 27.9% compared with the industry’s 20% rise over the past year.

Integer Holdings, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 12.1%. ITGR’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 8.4%.

Integer Holdings has gained 29.1% compared with the industry’s 2.8% rise over the past year.