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Why Is HealthEquity (HQY) Up 15.1% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for HealthEquity (HQY). Shares have added about 15.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is HealthEquity due for a pullback? 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 Q4 Earnings and Revenues Top Estimates

HealthEquity, Inc. reported adjusted earnings per share of 39 cents in fourth-quarter fiscal 2020, which surpassed the Zacks Consensus Estimate of 34 cents by 14.7%. The bottom line also improved a significant 30% on a year-over-year basis.

For the full-year fiscal 2020, adjusted EPS came in at $1.17, down 9.3% from the year-ago period. Further, the bottom line missed the consensus mark of $1.67 per share by 29.9%.

Revenues in Detail

The Zacks Rank #2 (Buy) company generated revenues of $201.2 million outpacing the Zacks Consensus Estimate by 1.4%. Further, the figure soared 165.5% from the prior-year period.

For the full-year fiscal 2020, revenues came in at $531.9, which soared 85.2% from the year-ago period and beat the consensus mark by 0.2%.

HSA Member Detail

As of Jan 31, 2020, the total number of Health Savings Accounts (HSA), for which HealthEquity served as a non-bank custodian (HSA members), was 5.3 million, up 34% year over year.

Additionally, total Active HSA members were 4.3 million, up 34% year over year.

Total Custodial Assets totaled $11.5 billion, up 43% year over year.

Segmental Performance

Service Revenues: At this segment, revenues totaled $122.2 million, up significantly from the year-ago quarter’s $25.8 million.

Custodial Revenues: At this segment, revenues grew 39.2% year over year to $49.4 million, attributable to growth in HSA assets and 2.41% higher year-over-year annualized interest rate yield on HSA cash assets.

Interchange Revenues: At this segment, revenues skyrocketed 104% year over year to $29.7 million. Per management, the upside was driven by increase in average total accounts.

Margin Details

HealthEquity generated gross profit of $113.7 million, up significantly from the year-ago quarter’s $44.4 million. Gross margin was 56.5% of net revenues, down 220 bps year over year.

Sales and marketing expenses summed $13.9 million, up 76.6% year over year. Technology and development expenses totaled $31.5 million, up from $10 million in year-ago quarter. General and administrative expenses amounted to $23.4 million, up from the prior-year quarter’s $8.5 million.

Operating income in the fiscal fourth quarter was $14.5 million, down 12.3% year over year. Operating margin totaled 7.2% in the quarter, down significantly from the year-ago quarter’s 21.9%.

Guidance

HealthEquity issued its guidance for fiscal 2021.

The company expects revenues between $770 million and $790 million. The Zacks Consensus Estimate is pegged at $822.4 million.

Adjusted net income is projected between $124 million and $132 million.

Adjusted EPS for fiscal 2021 is expected within $1.70-$1.81. The Zacks Consensus Estimate for earnings is pegged at $1.81.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -14.16% due to these changes.

VGM Scores

Currently, HealthEquity has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, 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

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, HealthEquity has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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