HealthEquity, a leading provider of health savings accounts, broke out to a multiyear high early Tuesday after posting better-than-expected first-quarter results late Monday. HQY stock is benefiting from the Federal Reserve's higher-for-longer interest rate policy. However, its results show that interest rates will continue to be a tail wind even after an eventual pivot to rate cuts.
In a late Monday note, Jefferies analyst Glen Santangelo wrote that HealthEquity's results might pull some investors "concerned about rates off sidelines." He reiterated a buy rating and 95 price target for HQY. At least four firms hiked their targets to $104 or higher, including Wells Fargo, JMP Securities, Baird and BofA.
"With momentum on both growth and margins, we are raising full-year guidance and pushing forward our platform investments to deliver remarkable experiences, deepen partnerships, and drive member outcomes," CEO Jon Kessler said in an earnings statement.
HealthEquity Earnings
HealthEquity reported adjusted earnings per share of 80 cents for the fiscal first quarter ending April 30. That was up 60% from a year ago and 14 cents ahead of estimates. Revenue grew 18% to $287.6 million, topping estimates by $7.5 million.
Health saving account members grew 13% to 9.1 million, boosted by the acquisition of BenefitWallet's portfolio of 616,000 HSAs.
HealthEquity offered full-year EPS guidance of $2.93 to $3.10, up from a prior range of $2.79-$2.96. Analysts were forecasting $2.90. The firm now sees full-year revenue of $1.16 billion to $1.18 billion vs. a $1.16 billion consensus.
HealthEquity raised its guidance for an average yield on HSA cash between 3% and 3.05% for fiscal 2025. The firm typically invests customer cash in three-year tranches, so about one-third of invested cash came before interest rates began their big climb. With rates expected to stay above 4% for some time, the average yield will rise over the coming year.
HSAs
Health savings account contributions are made pretax, like 401(k) contributions. But distributions are tax-free, as long as they go toward medical expenses. Further, there are no mandatory distributions.
That makes HSAs the most tax-advantaged retirement account.
A May 30 research report from Jefferies highlights some HSA stats. Devenir data shows HSA account totals growing 6% a year and assets growing 11% a year over the next three years.
HQY Stock
HealthEquity jumped 3.3% to 83.91 in early Tuesday stock market action. The stock's initial surge lifted HQY briefly above an 84.49 buy point from a 12-week flat base.
Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
