HealthEquity, Inc. HQY has been gaining from its business model and strategy. The optimism, led by a solid third-quarter fiscal 2025 performance and strength in Health Savings Accounts (“HSA"), is expected to contribute further. However, stiff competition and the possibility of the integration of acquisitions being unsuccessful are major downsides.
In the past six months, the Zacks Rank #3 (Hold) company’s shares have risen 26.2% against 10.4% decline of the industry.The S&P 500 has increased 5.2% during the said time frame.
The renowned provider of technology-enabled services platforms for healthcare savings and spending decisions has a market capitalization of $8.64 billion. The company projects 24.6% growth for the next five years and expects to witness continued improvements in its business. HealthEquity’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 16.61%.
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Let’s delve deeper.
Business Model and Strategy: We are optimistic about HealthEquity’s business model, which is based on a business-to-business-to-consumer distribution strategy. The company believes that there are significant opportunities to expand the scope of its services for its current clients. Per HealthEquity’s management, it has a diverse distribution footprint to attract new clients and network partners. Its sales force calls on enterprise and regional employers in industries across the United States as well as potential Network Partners from among health plans, and benefits administrators and retirement plan record keepers.
Strength in HSA: During the third quarter of fiscal 2025, despite inflationary challenges, HealthEquity experienced solid growth in HSA balances, driven by a significant increase in invested assets, which now represent a larger portion of total HSA assets.
HealthEquity’s total number of HSAs, as of Oct. 31, 2024, rose 15% year over year. As of Oct. 31, 2024, the company reported 717,000 HSAs with investments. The figure rose 21% year over year. Total accounts, as of Oct. 31, 2024, also increased 7.8% on a year-over-year basis. This uptick included total HSAs and 7 million other consumer-directed benefits. Total HSA assets as of Oct. 31, 2024, rose 33% year over year. This included HSA cash and investments.
Strong Q3 Results: HealthEquity saw solid top and bottom-line performances in the third quarter of fiscal 2025. Solid growth in HSAs also drove the top line. The solid uptick in total HSA assets in the reported quarter looks promising. The expansion of both margins also bodes well.
The growing number of members choosing to invest in HSAs reflects a positive trend. Additionally, more members are selecting enhanced rates on HSA cash, leading to improved and more consistent custodial yields.
HealthEquity has raised its revenue and earnings guidance for fiscal 2025 on its third-quarter earnings call, signaling confidence in its ongoing growth trajectory.
Downsides
Integration of Acquisitions Might be Unsuccessful: The success of HealthEquity’s recent acquisitions depends partly on its ability to realize the anticipated business opportunities by effectively combining the operations of the acquired businesses with its own. The integration of HealthEquity’s acquisitions could take longer and be costlier than anticipated. It could result in the disruption of the company’s ongoing as well as acquired businesses and harm its financial performance.
Stiff Competition: HealthEquity faces stiff competition in the rapidly evolving and fragmented medical services market. The company’s success, to a substantial extent, depends on consumers' willingness to increase their use of HSAs and other CDBs, as well as its ability to increase engagement and demonstrate the value of its services to existing and potential clients.
HealthEquity, Inc. Price
HealthEquity, Inc. Price
HealthEquity, Inc. price | HealthEquity, Inc. Quote
Estimate Trend
HealthEquity has been witnessing a positive estimate revision trend for fiscal 2025. Over the past 60 days, the Zacks Consensus Estimate for earnings per share has moved north 1% to $3.14.
The Zacks Consensus Estimate for fourth-quarter fiscal 2025 revenues is pegged at $304 million, implying a 15.9% rise from the year-ago reported number. The consensus mark for earnings per share (EPS) is pinned at 72 cents, implying a 14.3% improvement year over year.
Key Picks
Some better-ranked stocks in the broader medical space are Cardinal Health, Inc. CAH, ResMed Inc. RMD and Boston Scientific Corporation BSX.
Cardinal Health, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 10.2%. CAH’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 11.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cardinal Health’s shares have gained 25.3% compared with the industry’s 3.2% growth in the past six months.
ResMed, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 14.8%. RMD’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 6.4%.
ResMed has gained 22.6% compared with the industry’s 9.1% growth in the past six months.
Boston Scientific, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 13.8%. BSX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 8.3%.
Boston Scientific’s shares have rallied 20.9% compared with the industry’s 9.1% growth in the past six months.
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