HealthEquity candidate

I found this tooling around the internet and started investigating further. Found a “New America” article in IBD, not sure if the link is full public access:…

Here is the summary:
one of the nation’s top administrators of health savings accounts (HSA), and hasn’t had a problem keeping customers to date. About 90% of all HSA accounts ever opened at HealthEquity are still there.

Offers HSA products to companies, including 20 of the 50 largest domestic health plans. As of July 31, it had 1.5 million HSA members and $2.6 billion in assets under management.

Big banks like BAC and Wells Fargo are jettisoning their management business because it is not a core part of their business, this lets Health Equity pick up more customers.

The company has run off 10 straight quarters of 30% or better revenue growth.

Its top line has increased at least 43% in each of the last four quarters, and its stock price set a new high of 35.78 this month.

One reason why the company is doing so well: HSAs are becoming increasingly popular. Citing industry data, Kessler says that the number of HSA members in the U.S. is expected to grow by 20% this year to nearly 20 million.

HSAs are cheaper for employees and a big piece of the ACA/Obamacare. HSAs will help companies avoid the coming Cadillac tax (OT, because GOd forbid a company be allowed to give employees a good benefit /OT)

2 years ago my company introduced HSAs as an option and there were 4 PPO options. Last year only 3 PPO options and this year only 2. See the trend? We may have 0 by the time the tax hits. I suspect many companies are doing the same. FYI, ours was with JPMorgan and their fund fees were mostly evil. It was recently transferred to a new company, possibly HQY, but not sure. The funds stayed the same for now.

As fast as the overall HSA market is growing, HealthEquity is expanding even more rapidly. The 1.5 million members it had at the end of its fiscal second quarter represented a 45% increase from the prior year. The company gets revenue from three different sources:
account fees paid by employers or individuals;
custodial fees or interest earned on assets; and
card fees charged to merchants using HealthEquity’s HSA cards

Q2 ended July 31: account fee revenue gained 38% from the prior year to $14.6 million. Custodial fee revenue rose 52% to $9 million, while card fee revenue increased 60% to $6.8 million.
Earnings came in at 9 cents a share, up 50% from a year earlier. Analysts polled by Thomson Reuters expect full-year EPS to rise 43% this fiscal year and another 50% next fiscal year.

Recently bought Bankcorp’s HSA portfolio, acquiring 17K customers with $400M. They expect more buys as banks unload this non-core business.

HSAs need custodians, and at first that was the only place for companies to go, but HQY specializes so can provide better and cheaper service.

So this is really interesting. Given my experience with HSAs over last 2 years and given the laws, I think this is a big trend and this company sounds like a strong candidate for 1YPEG consideration (not having done the fundamental research yet). It won’t be hurt by political demagoguing about high drug prices, it won’t be hurt if insurance companies merge. It would be hurt if the Cadillac was repealed (which Republicans and Unions want to happen). But it is a stealth way for companies like mine to shift costs to employees under the guise of “evil obamacare”, so that is a strong push.

It does not have top ratings, but pretty good…

Composite Rating 92 Neutral
EPS Rating 80 Pass
RS Rating 96 Pass
Group RS Rating B+ Pass
SMR Rating A Pass
Acc/Dis Rating B Pass

Red Flag:
Finviz shows current PE as 132 and forward PE as 76.76. PEG 3.80 (high). I believe Saul generally feels that is too high and incurs too much risk. If the market sells off, high PEs tend to get shot first. In August the stock stood at $34 and over a week that ended in the flash crash, sold from $34 to $29 and on flash day it went from $29 to $24.73 and bounced to close at $27.5. It failed to break back above the 200dma in two tries in Sept and finally making it past in late Oct starting its recovery run back to present price of $34.50. It is just now popping out of its double-bottom base, and has had a few nice accumulation days on the way.

So, without actually looking into 8Q’s of EPS and Rev, I am thinking this is more for a short term growth investor than for this board. But it started out looking good :wink:


OT: FYI, these do have the effect of getting the consumer more involved. I recently thought I needed an MRI, so I called my insurance company for pricing and got a huge variation. In the hospital it was over a thousand, maybe more. In one standalone facility it was only $560. Since it was all coming out of my pocket, I decided not to help the hospital subsidize all the non-paying ER patients.

Also I heard a podcast on one company working with insurance companies to direct patients to cheaper “commodity” facilities. They will give you a list of facilities (MRI for example) and tell you how much they will cost out of your pocket but also say if you go to place “B”, we will send you a check for $50. A good win-win that is actually working well.

I did create a spreadsheet to determine my company’s best options for me. it accounted for deductible, out of pocket max and premiums for all plans. It let me enter a marginal tax rate including my state tax and it let me enter different medical and pharma costs for me and my wife. In all scenarios, my after tax costs were much less with the HSA than the PPO option (which had higher premiums, but lower deductible). Year one my company gave me $1k to seed the HSA but the following 2 years it was only $500.

Year one, my wife had several surgeries and associated expenses. We had used up her $3k deductible in January. Then it switched from 100% payment by us to 20% copay by us. Even with that we came close to max out of pocket. This year we had almost no expenses and essentially banked the $6500 tax free money that went into the HSA. (The first year I did not draw down on the $6500 contributions because I was lucky enough to be able to cover the costs, so that money remains in the HSA growing tax free for my use in retirement when I have no salary income to count on). I was extra lucky as I had held cash until a good opportunity, which was the August crash :wink:

Loophole: My wife had to go on Nexium, 2x40mg a day which is really expensive. She ended up slowing down consumption near the end of the year so I was able to actually order a couple of 90 day supplies last year while still on the 20% copay, thus avoiding the 100% copay that restarted in Jan. So “lucky” :wink: