HealthEquity Stock Soars 11% on Better Than Expected Q1 Results

HealthEquity (NASDAQ:HQY) delivered a strong performance in its third quarter, beating analyst expectations for both earnings and revenue. Despite the beat, the company’s shares dropped nearly 7% in after-hours trading yesterday.

For the quarter, HealthEquity reported adjusted earnings of $0.78 per share, exceeding the Street consensus estimate of $0.72. Revenue climbed 21% year-over-year to $300.4 million, surpassing projections of $289.92 million. The company also set quarterly records for health savings accounts (HSAs), HSA assets, total accounts, and revenue.

The number of HSAs reached 9.5 million by the end of the quarter, representing a 15% increase from the previous year. Total HSA assets experienced even stronger growth, rising 33% year-over-year to $30 billion.

Looking ahead, HealthEquity projected fiscal 2025 revenue in the range of $1.185 billion to $1.195 billion, with adjusted earnings per share estimated between $3.08 and $3.16. The company also issued an early outlook for fiscal 2026, forecasting revenue between $1.275 billion and $1.295 billion.

HealthEquity, Inc. (NASDAQ:HQY) is a prominent player in the Zacks Medical Services industry, specializing in providing services related to Health Savings Accounts (HSAs) and Consumer-Directed Benefits (CDBs). The company has consistently demonstrated strong financial performance, as evidenced by its recent earnings report for the third quarter ending October 31, 2024.

On December 9, 2024, HealthEquity reported earnings per share (EPS) of $0.78, surpassing the estimated $0.71. This represents a significant improvement from the $0.60 per share reported in the same quarter last year, as highlighted by Zacks. The earnings surprise for this quarter stands at 9.86%, showcasing the company's ability to exceed market expectations consistently.

In addition to strong earnings, HealthEquity achieved a revenue of approximately $300.4 million, exceeding the estimated $290.1 million. This marks a 21% increase from the $249.2 million reported in the same quarter of the previous fiscal year. The company has consistently surpassed consensus revenue estimates in the last four quarters, reflecting its robust growth trajectory.

Despite the impressive revenue growth, HealthEquity's net income decreased to $5.7 million from $14.7 million in Q3 FY24. However, the non-GAAP net income rose by 33% to $69.4 million, up from $52.2 million in the previous year. This indicates that while the company's traditional net income faced challenges, its adjusted financial performance remains strong.

HealthEquity's financial metrics further highlight its market position. The company has a price-to-earnings (P/E) ratio of approximately 91.07, indicating investor confidence in its future earnings potential. Its low debt-to-equity ratio of 0.03 suggests a conservative approach to debt, while a current ratio of 3.20 underscores its strong liquidity position.

HealthEquity, Inc. (NASDAQ:HQY), a leading provider of health savings accounts and other health financial services, recently reported its earnings for the first quarter ended April 30, 2024. Despite the earnings per share (EPS) of $0.33 falling short of the estimated $0.66, the company's revenue of approximately $287.6 million exceeded the expected $277.8 million. This performance indicates a complex financial landscape for the company, where revenue growth outpaces earnings expectations.

The company's financial results highlight a significant year-over-year improvement, with a notable increase in net income from $4.1 million in the first quarter of fiscal year 2024 to $28.8 million in the same period this year. This surge in net income, alongside a 64% increase in non-GAAP net income from $42.8 million to $70.3 million, underscores HealthEquity's robust growth and operational efficiency. Such financial health is crucial for investors assessing the company's profitability and future growth prospects.

HealthEquity's market valuation metrics further illuminate its financial standing. With a price-to-earnings (P/E) ratio of approximately 87.32 on a trailing twelve-month basis, the company is perceived as having a premium valuation by the market. This is further supported by a price-to-sales (P/S) ratio of about 6.78 and an enterprise value (EV) to sales ratio of roughly 7.48, indicating investors' willingness to pay a higher price for each dollar of sales. These ratios suggest strong market confidence in HealthEquity's growth trajectory and its ability to generate future earnings.

Moreover, the company's debt-to-equity ratio of about 0.47 and a strong current ratio of approximately 4.39 demonstrate a moderate level of debt relative to equity and a solid ability to cover short-term liabilities with short-term assets. These financial health indicators are essential for investors to understand the company's financial stability and risk profile.

In summary, HealthEquity's latest financial report reveals a company that is growing its revenue and improving its net income significantly, despite an earnings miss. The company's valuation metrics and financial health indicators reflect strong market confidence in its future growth and operational efficiency. As HealthEquity continues to navigate the competitive landscape of health financial services, these financial results will be key for investors monitoring the company's progress and potential for long-term success.

KeyBanc analysts increased their price target on HealthEquity (NASDAQ:HQY) to $95 from $85, keeping an Overweight rating.

The analysts shared insights from a recent conference with HealthEquity's management, coming after the company reported impressive earnings, particularly in terms of profitability. The analysts adjusted estimates upward, considering higher custodial yields, with enhanced rate products now exceeding 30% and expected to rise to around 60% by 2027 or sooner.

The analysts believe HealthEquity is strategically positioned for growth by expanding its share in the Health Savings Accounts market, both organically and through strategic acquisitions, enhancing its rate business, and utilizing AI to bolster its financial performance.

The analysts argued that the company's high-margin HSA assets, which contribute to a strong cash position, justify the potential for multiple expansion, supporting his Overweight rating.

HealthEquity (NASDAQ:HQY) shares gained more than 11% intra-day today after the company reported its Q1 earnings results, with revenue coming in at $244.4 million, better than the Street estimate of $239.39 million. EPS was $0.50, beating the Street estimate of $0.41.

For fiscal 2024, the company expects EPS to be in the range of $1.88-$1.97, compared to the Street estimate of $1.77, and revenue in the range of $975-$985 million, compared to the Street estimate of $968 million.

While the interest rate outlook continues to be the primary force driving both EBITDA & shares, analysts at RBC Capital see encouraging improvement across other fundamentals as well, including (1) continued progress driving increased adoption of the company's enhanced yield offerings, (2) benefits of automation driving lower service costs, and (3) increasing traction adding new clients.

HealthEquity, Inc. (NASDAQ:HQY) shares were trading more than 23% lower Tuesday morning, following the company’s reported Q3 results, with revenues coming in at $180 million, below the consensus estimate of $184 million. This was driven primarily by weakness in service revenue as the number of CDBs declined sequentially across FSAs, commuter, and COBRA.

In addition, the company provided a downward guidance revision, which likely caught most people by surprise, however, the strength in the core HSA business appears to be continuing into year-end.

According to the analysts at RBC Capital, the significant share price drop following the “by no means great quarter” is a pretty strong over-reaction.