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HealthEquity (HQY) is an undervalued and underappreciated stock that is a buy at the sub $50 level. The stock is hovering just above its COVID-19 lows despite the epic market rally. HealthEquity (HQY) has fallen from its 52-week highs of $89 to a low of $35 or 60% during the COVID-19 market meltdown. The recent sell-off in equities has resulted in a 20% dive moving from $61 to $48. This sell-off presents a great opportunity for this healthcare cost containment company.

Considering HealthEquity’s unique position as being distinctly disassociated from drug pricing issues, rising insurance costs, or the pharmaceutical supply chain, this sell-off is a great opportunity for an entry point. HealthEquity is in a strong position and being offered at a heavy discount. For long-term investors, HealthEquity presents a compelling picture of growth with a large addressable market moving forward and further strengthened with its acquisition of WageWorks.

HealthEquity’s Q2 Earnings

HealthEquity announced its Q2 earnings with WageWorks being fully integrated into its financial numbers as the acquisition closed on August 30, 2019. Revenue for Q2 was $176 million, growing 103% compared to $86.6 million for the second quarter ended July 31, 2019. Revenue this quarter included: service revenue of $103.8 million, custodial revenue of $46.9 million, and interchange revenue of $25.3 million. HSAs now exceed 5.4 million, an increase of 29% year over year. Total Accounts as of July 31, 2020, reached 12.5 million, including 7.1 million CDBs. Total HSA Assets as of July 31, 2020, were $12.2 billion. Total HSA Assets included $9.0 billion of HSA cash and $3.2 billion of HSA investment assets (Figure 2).

Figure 1 – High-level overview of the newly combined HealthEquity company branching out into all segments of consumer-directed benefits
Continue reading "HealthEquity - Undervalued And Underappreciated Buy" →

It’s no surprise that HealthEquity (HQY) has been crushed in the face of the COVID-19 market meltdown. COVID-19 caused the fastest and most aggressive selloff in history, with the indices falling ~35% over the course of 23 days. HQY has fallen from its 52-week highs of $89 to a low of $35 or 60% during this market meltdown.

Considering HealthEquity’s unique position as being distinctly disassociated from drug pricing issues, rising insurance costs, or the pharmaceutical supply chain, this selloff is an excellent opportunity for an entry point. As COVID-19 inevitably subsides, HealthEquity is in a strong position and being offered at a substantial discount. For long-term investors, HealthEquity presents a compelling picture of growth with a large addressable market moving forward and further strengthened with its acquisition of WageWorks.

COVID-19 Long-Term Catalyst

The COVID-19 pandemic will likely bring more attention to the Health Savings Account (HSA) space and may drive demand from more companies and consumers alike. The Health Savings account serves as a win-win for companies and consumers as this is an effective way to contain healthcare costs while allowing funds to accumulate for potential future medical expenses. This space has already been under a secular growth trend, and this pandemic may accelerate the growth of these accounts as awareness spreads.

Conversely, in the short-term, HSA funds may be depleted at a faster rate by account holders. Contributions may fall due to the spike in unemployment, and employer matching contributions may be in jeopardy as liquidity comes into question for many companies that have transitioned into survival mode post-COVID-19. However, over the long term, Continue reading "HealthEquity - COVID-19 Induced Selloff Buying Opportunity" →

HealthEquity’s tie-up with WageWorks is starting to bear fruit. The synergies of this combination were evident in the company’s Q3 2019 quarterly results as the stock rallied over 12% post-earnings. HealthEquity made a bold move to acquire WageWorks for approximately $2 billion in an all-cash deal.

This acquisition has expanded HealthEquity’s moat in the Health Savings Account space while providing new revenue verticals in complementary product offerings. This move is already expanding HealthEquity’s total addressable market as Consumer-Directed Benefits (CDBs) via pre-tax spending accounts such as additional Health Savings Accounts (HSAs), health and dependent care Flexible Spending Accounts (FSAs), health reimbursement accounts (HRA), Commuter Benefit Services, wellness programs, COBRA and other employee benefits are absorbed into its product offerings. This acquisition provides access to a larger client base and access to health brokers that will help drive HealthEquity’s penetration over the long term.

The combination of WageWorks’ leading consumer-directed benefits with HealthEquity’s HSA platform is highly synergistic and will drive growth while expanding the total addressable market in years to come (Figure 1).

Figure 1 – High-level overview of the newly combined HealthEquity/WageWorks company

HealthEquity’s Q3 2019 Earnings and Unique Positioning

HealthEquity announced its Q3 2019 earnings, and the initially popped 16% in after-hours trading. This quarter was the first full quarter with WageWorks being fully integrated into the company’s financial numbers as the acquisition closed on August 30th, 2019. Continue reading "HealthEquity - WageWorks Combination Bearing Fruit" →

HealthEquity Inc. (HQY) made a bold move to acquire WageWorks for approximately $2 billion in an all-cash deal. This acquisition will expand HealthEquity’s moat in the Health Savings Account space while providing new revenue verticals in complementary product offerings. This move will expand HealthEquity’s total addressable market as Consumer-Directed Benefits (CDBs) via pre-tax spending accounts such as additional Health Savings Accounts (HSAs), health and dependent care Flexible Spending Accounts (FSAs), health reimbursement accounts (HRA), Commuter Benefit Services, wellness programs, COBRA and other employee benefits are absorbed into its product offerings. This acquisition provides access to a larger client base and access to health brokers that will help drive HealthEquity’s penetration. The majority of HSA clients would prefer to have its CDBs administered by its HSA provider, and more than 50% of HealthEquity’s clients have requested a CDB product. The combination of WageWorks’ leading consumer-directed benefits with HealthEquity’s HSA platform will be highly synergistic and drive growth while expanding the total addressable market in years to come.

HealthEquity’s Unique Positioning

A potential economic slowdown, a trade war with China, tariffs, yield curve inversion, etc., are irrelevant when it comes to HealthEquity. HealthEquity’s business model is such that it stands as an intermediary servicing the secular growth Health Savings Account (HSA) space that’s largely independent of legislative actions, drug pricing, rising insurance costs while not playing any role in the pharmaceutical supply chain from health insurers to end-user pharmacies. The company simply manages funds allocated for medical, dental and vision expenses that are deducted on a pre-tax basis and deposited into a dedicated HSA account. The HSA space has grown in popularity as corporate adoption has allowed access to these plans in conjunction with consumer awareness.
HealthEquity is an intermediary that connects health and wealth to consumers of healthcare. Think of this as a parallel to the credit card companies that only focus on the transactions and not the financial liability of the card user. The banks take on the financial liability of the branded card (i.e., Visa or Mastercard) and merely facilitate the financial transaction. HealthEquity has partnerships with over 45,000 employers and 141 health, retirement, and other benefit plan providers nationwide. HealthEquity is the custodian of $8.3 billion in assets for 4.1 million HSA members nationwide. The company continues to post quarter after double-digit quarter growth in revenue and EPS without any debt on the balance sheet. Recently, the company released its Q1 2020 results Continue reading "Transformative Combination of HealthEquity and WageWorks" →