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Why Is HealthEquity (HQY) Down 29.3% Since Last Earnings Report?

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It has been about a month since the last earnings report for HealthEquity (HQY - Free Report) . Shares have lost about 29.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is HealthEquity due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

HealthEquity Q3 Earnings Beat, HSA Member Growth Strong

HealthEquity reported earnings of 28 cents per share in the third quarter of fiscal 2019, which surpassed the Zacks Consensus Estimate of 25 cents. The bottom line was higher than the year-ago quarter’s earnings of 17 cents on revenue and margin expansion.

Revenues amounted to $70.5 million, up 24.1% year over year. Moreover, the top line marginally exceeded the Zacks Consensus Estimate of $69.8 million.

HSA Member Details

The total number of Health Savings Accounts (HSA), for which HealthEquity served as a non-bank custodian (HSA Members), was 3.7 million, up 22% year over year.

Additionally, total Active HSA Members were 3 million in the reported quarter, up 17% year over year.

Segmental Performance

Service Revenues:At this segment, revenues rose 9.1% year over year to $25 million. The uptick was driven by 22% year-over-year increase in average HSA, partially offset by an 11% decline in service revenue per average HSA.

Custodial Revenues:  At this segment, revenues increased 42.8% year over year to $31.6 million. The improvement was supported by 29% growth in total custodial assets and a higher annualized interest rate yield on custodial cash assets of 2.1% during the quarter under review.

Interchange Revenues:At this segment, revenues improved 18.5% year over year to $13.9 million. Increased card spending and more favorable interchange terms (higher spend volume) led to this upside.

Gross Margin Details

HealthEquity registered gross profit of $45.8 million, up 30.1% year over year in the third quarter.  Gross margin level was 65% of net revenues, up 560 basis points year over year.

Sales and marketing expenses summed $7.5 million, 27.3% year over year.

Technology and development expenses totaled $8.7 million, up 26.4% year over year.

General and administrative expenses amounted to $9.2 million, up 46.5% year over year.

Guidance

For fiscal 2019, HealthEquity projects revenues in the range of $281-$285 million, up from $279-$285 million anticipated earlier. The Zacks Consensus Estimate is pegged at $284.1 million, which lies within the guided range. 

Adjusted income is envisioned in the band of $68-$72 million, up from the previous guidance of $67-$71 million. Adjusted net income per share is expected in the range of $1.06-$1.13, up from $1.05-$1.11 projected previously. The Zacks Consensus Estimate is pegged at $1.11, which lies within the guided range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -14.55% due to these changes.

VGM Scores

Currently, HealthEquity has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, HealthEquity has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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