HQY: Health Equity

I have liked this stock for quite sometime and mentioned a couple times here. It is in the business of managing Health Savings Accounts and seems to be moving toward 401k management. They get quarterly fees paid by the employer or employee. I don’t recall if they make any money on NAV, but they probably get some kickbacks from mutal funds. I believe this market will continue to grow has employers shift more costs to employees like they did for 401ks, so possible long term trend. They do have competitors, and someone like Fidelity or Vanguard could come in and crush them potentially.

Also a risk to healthcare changes that might be coming, could help or hurt.

Here is a recent IBD note:

HealthEquity has posted two quarters of rising earnings growth, beating analyst estimates for fiscal 2018 Q2 (ended July 31) by 40% when it generated a 31% rise in EPS.

The Utah-based company has been increasing earnings growth at an annual clip of 90% over the last three years, and sales have been rising at a 41% during the same time. The company is expected to report fiscal Q3 numbers in early December.

HealthEquity sports a solid 25% pretax profit margin and a 94 Composite Rating, earning it the No. 3 spot in the Commercial Services-Outsourcing group, just behind Cintas (CTAS) and Insperity (NSP).

Third’s The Charm?

After two failed breakouts since January, HealthEquity is hoping its new base will launch a successful climb. The current pattern is an early-stage cup without handle showing a 55.05 buy point.

The stock ended the week up over 2% and 6% below the entry.

A B Accumulation/Distribution Rating, 1.1 up/down volume ratio and five quarters of rising fund ownership point to institutional demand for the stock.

The relative strength line is trending upward and nearing new high ground, a bullish sign ahead of a potential breakout.

Look for HealthEquity to clear the buy point in volume at least 40% above average

Here is a nice long “New America” article from June 30:

Chartwise this is a nice base after a good run up.

Pretty good ratings:
Composite Rating 94 Neutral
EPS Rating 95 Pass
RS Rating 77 Pass
Group RS Rating B Pass
SMR Rating A Pass
Acc/Dis Rating B Pass

the Composite is a bit weak, but otherwise good numbers.


Five Reasons To Favor The Stock

That said, there are five reasons to put HealthEquity on a watchlist for a possible buy on the breakout.

The company is in a niche with a future. Health savings accounts are growing in popularity. They offer a tax-free way to grow an account to tap for medical bills. While ObamaCare has survived repeal attempts, what it can’t and won’t survive is economic reality. There is no free lunch in health care. Someone must pay, and HSAs will grow in importance as part of the solution. That should help HealthEquity’s earnings and revenue.

In the past three fiscal years (which end in January), HealthEquity grew earnings 1,050%, 48% and 44%. Revenue jumped 42%, 44% and 41%. The Street expects earnings to grow 45% in fiscal 2018 on a revenue gain of 27%.

Margin after tax was about 23% in the most recently reported quarter, the best in at least 19 quarters.

Operating cash flow per share was 45% greater than earnings per share in fiscal 2017. The desired minimum for cash flow per share is 20% above EPS. Also, HealthEquity has zero debut.

HealthEquity has some quality fund support. In the four quarters ended in June, mutual funds grew their overall stake by 11%. In Q2, Fidelity Contrafund (FCNTX) added to its position, increasing its stake by 40%.

Worth a sniff. Sorry I can’t do more because of other committments, but if there are some newbies on the board wanting to practice Saul’s research style, take a dive and let everyone know what you find.