Looking for a company that could benefit from the Affordable
Care Act? Consider
(WAGE), a $1.7 billion provider of benefits administration for
WAGE administers and operates an array of "consumer-directed
benefit" solutions (CDBs), including spending account management
programs, such as health and dependent care flexible spending
accounts, health savings accounts, health reimbursement
arrangements and commuter benefits, such as transit and parking
While analysts are optimistic about WAGE's prospects in the new
healthcare exchange environment, the stock has run pretty far this
year to capture that sentiment, as you can see in the chart below
which shows a solid 3-bagger.
The Healthcare Exchange Opportunity
WageWorks has a partnership with one of the most well-known private
employee exchanges, Towers Watson. Towers has said its active
employee exchange, which has recently been formed, will add two
employers with 40,000 employees on January 1, 2014, along with its
own employees. We believe it is possible Towers will add several
hundred thousand employees in 2015 and many more in subsequent
Analysts at William Blair believe "there are many other companies
considering private healthcare exchanges and we believe that
WageWorks is having conversations with several current and
potential industry participants."
(ACN) aggressively forecasts that there will be 40 million active
employees in healthcare exchanges by 2018, up from 1 million in
2014. WageWorks has about 10% market share in consumer-directed
healthcare benefits today with 2.1 million customers.
Again from Blair...
"Assuming Accenture is too aggressive by half, and that WageWorks
maintains its industry market share (its market share has been
increasing significantly), WageWorks could add 2 million new
employees by 2018. That would double its current base of clients
and, assuming historical economics, could add $120 million of
revenue (approximately $60/account/year) and as much as $60 million
Growing Into Its Multiple
This is not a cheap stock by any means, trading over 60X 2014
estimates. But the earnings growth is there as you can see in the
table below. And if the opportunities described above should
develop, this EPS trajectory looks set to continue because the
estimates here do not account yet for this growth potential.
Also note that we currently only have 2 analysts providing
estimates for WAGE. Therein also lies opportunity as other Wall
Street houses initiate coverage and give us a broader view of the
investment potential. With a string of earnings beats behind it
averaging 22% for the last four quarters, WAGE should be coming up
on more analyst radars.
The other growth factor in WAGE's favor is acquisitions. The
company looks to complete one to three deals per year in a very
fragmented industry. There are several hundred small companies in
the consumer-directed tax advantaged benefit account industry with
between $5 million and $25 million of revenue.
Now that WAGE is on your radar, keep an eye on the earnings
estimate revisions because they will tell you when these growth
factors are kicking in and could benefit your portfolio.
Kevin Cook is a Senior Stock Strategist for Zacks where he runs
Follow The Money
ACCENTURE PLC (ACN): Free Stock Analysis Report
WAGEWORKS INC (WAGE): Free Stock Analysis
SPDR-HLTH CR (XLV): ETF Research Reports
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