A month has gone by since the last earnings report for HealthEquity (HQY - Free Report) . Shares have lost about 5.3% 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 Earnings & Revenues Beat Estimates in Q2
HealthEquity reported adjusted earnings per share of 45 cents in second-quarter fiscal 2020, which surpassed the Zacks Consensus Estimate of 35 cents. The bottom-line figure also improved 27.8% on a year-over-year basis.
Revenues of the Zacks Rank #3 (Hold) company amounted to $86.6 million, which rose 21.9% year over year and also outpaced the Zacks Consensus Estimate of $85.4 million.
HSA Member Detail
As of Jul 31, 2019, the total number of Health Savings Accounts (HSA), for which HealthEquity served as a non-bank custodian (HSA members), was 4.2 million, up 16% year over year.
Additionally, total Active HSA members were 3.3 million, up 13% year over year.
Total Custodial Assets was $8.5 billion, up 21% year over year.
Service Revenues: At this segment, revenues rose 5.4% year over year to $26.3 million. The uptick was driven by a year-over-year increase of 17% in average HSA, partially offset by a decline of 10% in service revenues per average HSA.
Custodial Revenues: At this segment, revenues grew 42% year over year to $43.6 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 8.5% year over year to $16.7 million. The interchange revenues gained from year-over-year growth of 17% in average HSAs.
HealthEquity registered gross profit of $58.4 million, up 25.5% year over year in the fiscal second quarter. Gross margin level was 67.5% of net revenues, up 200 bps year over year.
Sales and marketing expenses summed $8.4 million, up 15.8% year over year. Technology and development expenses totaled $11.6 million, up 38.7% year over year. General and administrative expenses amounted to $9.3 million, up 17.3% year over year.
Operating income in the fiscal second quarter was $24.9 million, up 15.3% year over year. Operating margin totaled 28.7% in the quarter, down 160 bps year over year.
HealthEquity raised its revenue guidance for fiscal 2020.
The company now expects revenues of $341-$347 million compared with $339-$345 million mentioned earlier. The Zacks Consensus Estimate of $343.4 million for the same lies within HealthEquity’s guided range.
Adjusted net income is projected between $76 million and $80 million.
Adjusted EPS for fiscal 2020 is expected to be $1.10-$1.16. The Zacks Consensus Estimate for earnings is pegged at $1.33, above the company’s guided range.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -37.78% due to these changes.
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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise HealthEquity has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.