Reasons to Add HealthEquity (HQY) Stock to Your Portfolio

HealthEquity, Inc. HQY has been gaining from its business model and strategy. The optimism led by a solid fourth-quarter performance and strength in Health Savings Accounts (HSA) is expected to contribute further. However, stiff competition and the possibility of unsuccessful integration of acquisitions are major downsides.

So far this year, this Zacks Rank #2 (Buy) company has gained 19.5% compared with the 5.2% rise of the industry and the S&P 500’s 12.1% growth.

This renowned provider of technology-enabled services platforms for healthcare savings and spending decisions has a market capitalization of $6.9 billion. The company projects 32.3% 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 earnings surprise being 17.4%.

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Image Source: Zacks Investment Research

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 the services to 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, benefits administrators and retirement plan record keepers.

Strength in HSA: HealthEquity’s total number of HSAs, as of Jan 31, 2024, rose 8.9% year over year. HealthEquity reported 610,000 HSAs with investments as of Jan 31,  up 12.8% year over year. Total Accounts, as of Jan 31,were up 5.2% year over year. This uptick included total HSAs and 7 million other consumer-directed benefits (CDB). Total HSA assets at the end of Jan 31,were up 13.9% year over year. This included HSA cash and HSA investments.

Strong Q4 Results: HealthEquity saw solid top and bottom-line performances in the fourth quarter. The top line benefited from robust contributions from the majority of its revenue sources. The expansion of both margins was also seen.

Downsides

Unsuccessful Integration of Acquisitions: The success of HealthEquity’s recent acquisitions depends partly on its ability to realize the anticipated business opportunities by combining the operations of the acquired entities with its business efficiently and effectively. The integration of HealthEquity’s acquisitions may be longer and costlier than anticipated, and could result in the disruption of its ongoing business and the acquired business, among others, as well as harm its financial performance.

Stiff Competition: HealthEquity faces stiff competition in the Medical Services market, which is a rapidly evolving and fragmented one. The company’s success depends to a substantial extent on the willingness of consumers to increase their use of HSAs and other CDBs, and its ability to increase engagement and demonstrate the value of its services to existing and potential clients.

Estimate Trend

HealthEquity has been witnessing a positive estimate revision trend for fiscal 2025. Over the past 60 days, the Zacks Consensus Estimate for its earnings per share has moved 2.1% north to $2.90.

The consensus estimate for first-quarter revenues is pegged at $278.8 million, suggesting a 14.1% rise from the year-ago reported number.

HealthEquity, Inc. Price

HealthEquity, Inc. Price

HealthEquity, Inc. price | HealthEquity, Inc. Quote

Other Key Picks

Some other top-ranked stocks in the broader medical space areDaVita Inc. DVA, Boston Scientific Corporation BSX and Ecolab Inc. ECL.

DaVita, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 13.6%. DVA’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 29.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DaVita’s shares have gained 40.1% compared with the industry’s 24.1% rise in the past year.

Boston Scientific, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 12.5%. BSX’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 7.5%.

Boston Scientific has gained 41.4% against the industry’s 1.3% decline in the past year.

Ecolab, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 13.5%. ECL’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 1.3%.

Ecolab’s shares have rallied 36.2% against the industry’s 9.9% decline in the past year.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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