HealthEquity is Friday's IBD Stock Of The Day as the leading provider of health savings accounts sees customers' account balances grow faster amid the Federal Reserve's higher-for-longer interest-rate regime. HQY stock is pulling back on Friday after closing at an 11-month high, poised just below a buy point.
The Utah-based company had a 20% share of HSA assets at the end of 2022. As of its July fiscal second quarter, HealthEquity serviced 8.2 million health savings accounts with $23.2 billion in assets.
HQY Customers Look For Yield
While total assets rose 13% from a year ago in Q2, HSA assets in investment accounts surged 23% to $9.2 billion, as more customers took advantage of higher interest rates and the stock market rallied. HealthEquity CEO Jon Kessler noted on the Sept. 5 earnings call that "11% more of our HSA members became investors year over year, helping to drive up invested assets."
"We continue to see more members choose enhanced rates for their HSA cash, leading to higher for longer custodial yields and, we believe, less cyclicality in the future," Kessler said. HealthEquity earns a higher rate on assets that seek enhanced returns over cash.
On Oct. 13, Guggenheim named HealthEquity a "Best Idea," raising its price target on HQY stock to 110 from 94. The firm wrote that Wall Street models of HealthEquity's trajectory "underappreciate" how current interest rates will expand its assets under management.
HSA Market Growth
Baird upgraded HQY to outperform from neutral on Sept. 21, hiking its price target to 87 from 79. While higher interest rates should be a positive for the next few years, the firm said it sees HealthEquity as a "multi-decade compounder," extending its lead in a growing market.
Kessler said on the Q2 call that he sees the HSA market growing by "10% annually for years to come," and HealthEquity will aim to outperform that growth.
Analysts expect HealthEquity earnings to grow 48.5% to $2.02 a share for the year through January 2024 and 31% to $2.64 in fiscal 2025, according to FactSet. Sales are seen rising 15% to $987 million this fiscal year and 13% to $1.12 billion next year.
HQY Stock
HQY stock fell 4.1% to 73 in Friday afternoon stock market action. The decline is coming on modest volume, which is somewhat reassuring. Plus it follows four straight, though mostly modest, gains capped off by Thursday's 1.25% rise to 76.13.
HQY stock has a 76.62 buy point from a cup-with-handle base that stretches back to early November 2022.
Friday's retreat provides a little more depth on what has been a tiny handle.
