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HealthEquity (HQY) Down 2% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for HealthEquity (HQY - Free Report) . Shares have lost about 2% 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 Earnings & Revenues Top Estimates in Q1

HealthEquity, Inc. reported adjusted earnings of 41 cents per share in first-quarter fiscal 2020, which surpassed the Zacks Consensus Estimate of 34 cents by 20.6%. The bottom-line figure also improved 32.3% on a year-over-year basis.

Revenues amounted to $87.1 million, which increased 24.5% year over year and also outpaced the Zacks Consensus Estimate by 3.7%.

HSA Member Details

As of April 30, 2019, the total number of Health Savings Accounts (HSA), for which HealthEquity served as a non-bank custodian (HSA Members), was 4.1 million, up 17% year over year.

Additionally, total Active HSA Members were 3.2 million, up 13% year over year.

Total Custodial Assets was $8.3 billion, up 21% year over year.

Segmental Performance

Service Revenues: At this segment, revenues rose 8% year over year to $26.8 million. The uptick was driven by year-over-year increase of 17% in average HSA, partially offset by decline of 8% in service revenues per average HSA.

Custodial Revenues: At this segment, revenues increased 48% year over year to $42 million. The improvement was supported by 21% growth in average custodial cash assets and higher annualized interest rate yield on custodial cash assets of 2.5% during the quarter under review.

Interchange Revenues: At this segment, revenues improved 10% year over year to $18.3 million. The interchange revenues gained from year-over-year increase of 17% in average HSAs. The improvement was negated by a decrease in spend per average HSA.

Gross Margin Details

HealthEquity registered gross profit of $57.8 million, up 30.2% year over year in the first quarter. Gross margin level was 66.3% of net revenues, up 280 bps year over year.

Sales and marketing expenses summed $8.9 million, up 30.8% year over year. Technology and development expenses totaled $10.9 million, up 36.7% year over year. General and administrative expenses amounted to $8.7 million, up 16% year over year.

Operating income in the fiscal first quarter came in at $27.7 million, up 34.8% year over year. Operating margin totaled 31.8% in the quarter, up 240 bps year over year.

Guidance Raised

For fiscal 2020, HealthEquity now projects revenues in the range of $339-$345 million (up from the previously guided range of $333-$339 million). The mid-point of $342 million is above the Zacks Consensus Estimate of $337.4 million.

Adjusted net income is currently envisioned in the band of $83-$87 million (up from the previously guided range of $80-$84 million). Adjusted net income per share is expected in the $1.28-$1.34 range (up from the previous band of $1.23-$1.29 per share). The mid-point of $1.31 is above the Zacks Consensus Estimate of $1.28.

Adjusted EBITDA outlook is projected between $135 million and $140 million (up from the prior range of $133 million and $138 million).

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, HealthEquity has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise 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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