HealthEquity (HQY) Down 3.6% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for HealthEquity (HQY). Shares have lost about 3.6% 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 the most recent earnings report in order to get a better handle on the important catalysts.

HealthEquity Q2 Earnings Beat, HSA Member Growth Strong

HealthEquity posted earnings of 34 cents per share in the second quarter of fiscal 2019, surpassing the Zacks Consensus Estimate of 28 cents. The figure was higher than the year-ago quarter’s 21 cents on revenue and margin expansion.

Revenues amounted to $71.1 million, up 24.9% year over year. Also, the figure marginally beat the Zacks Consensus Estimate of $70 million.

HSA Member Details

The total number of Health Savings Accounts (HSA) for which HealthEquity served as a non-bank custodian (HSA Members) was 3.6 million, up 23% year over year.

Additionally, total Active HSA Members were 2.9 million in the reported quarter, up 19% year over year. During the quarter, 82% of net HSA members in the quarter were active.

Segment Details

Service revenues were up 9.3% year over year to $24.9 million. The upside was driven by a 12% year-over-year increase in average HSA.

Custodial revenues were up 44.3% year over year to $30.7 million supported by 31% growth in total custodial assets and a higher annualized interest rate yield on custodial cash assets of 2.1%.

Interchange revenues rose 20.6% year over year to $15.4 million. The rise was driven by increased card spending and more favorable interchange terms (higher spend volume).

Gross Profit Details

HealthEquity registered gross profit of $46.6 million, up 30.1% year over year.  Gross margin level in the second quarter was 65.5% of net revenues, up 260 basis points year over year.

Sales and marketing expenses were $7.2 million, up 39.4% year over year.
Technology and development expenses were $8.4 million, up 23.6% year over year.

Per management, adjusted EBITDA in the quarter was $31.8 million, up 33% year over year. This was the highest EBITDA margin in the company’s history.

Guidance

For fiscal 2019, HealthEquity projects revenues in the range of $279-$285 million, up from the previous guidance of $278-$284 million.

Adjusted income is projected in the range of $67-$71 million, up from the previous guidance of $55-$59 million. Adjusted net income per share is expected in the range of $1.05-$1.11.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted 15.13% due to these changes.

VGM Scores

At this time, HealthEquity has a nice Growth Score of B, though it is lagging a bit 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

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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