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3 Reasons Why You Should Hold HealthEquity (HQY) Stock Now

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HealthEquity, Inc. (HQY - Free Report) has been gaining from its business model and strategy. The optimism led by a solid first-quarter fiscal 2025 performance and strength in Health Savings Accounts (HSA) are expected to contribute further. However, stiff competition and the possibility that integration of acquisitions may be unsuccessful are major downsides.

Over the past year, the Zacks Rank #3 (Hold) stock has gained 29.3% compared with the 2.9% rise of the industry and the S&P 500’s 19.3% growth.

The renowned provider of technology-enabled services platforms for healthcare savings and spending decisions has a market capitalization of $6.94 billion. The company projects 28% growth for the next five years and expects to witness continued improvements in its business. HealthEquity’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average earnings surprise being 17.2%.

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Let’s delve deeper.

Business Model and Strategy: We are optimistic about HealthEquity’s business model, which is based on a business-to-business-to-consumer distribution strategy. The company believes that there are significant opportunities to expand the scope of services that it provides to its current Clients. Per HealthEquity’s management, it has a diverse distribution footprint to attract new Clients and Network Partners. Its sales force calls on enterprise and regional employers in industries across the United States, as well as potential Network Partners from among health plans, benefits administrators and retirement plan record keepers.

Strength in HSA: HealthEquity’s total number of HSAs, as of Apr 30, 2024, rose 13.1% year over year. HealthEquity reported 665,000 HSAs with investments as of Apr 30, 2024, up 19.6% year over year. Total Accounts, as of Apr 30, 2024, were up 6.7% year over year. This uptick included total HSAs and 6.9 million other consumer-directed benefits (CDB). Total HSA assets at the end of Apr 30, 2024, were up 22.2% year over year. This included HSA cash and HSA investments.

Strong Q1 Results: HealthEquity saw solid top-line and bottom-line performances in first-quarter fiscal 2025. The top line benefited from robust contributions from all its revenue sources. The expansion of both margins was also seen.

Downsides

Integration of Acquisitions Maybe Unsuccessful: The success of HealthEquity’s recent acquisitions depends partly on its ability to realize the anticipated business opportunities by combining the operations of the acquired businesses with its business in an efficient and effective manner. The integration of HealthEquity’s acquisitions could take longer and be more costly than anticipated, and it could result in the disruption of its ongoing business and the acquired business, among others, and could harm its financial performance.

Stiff Competition: HealthEquity faces stiff competition in the Medical Services market, which is a rapidly evolving and fragmented one. The company’s success depends to a substantial extent on the willingness of consumers to increase their use of HSAs and other CDBs, and its ability to increase engagement and demonstrate the value of its services to existing and potential clients.

Estimate Trend

HealthEquity has been witnessing a positive estimate revision trend for fiscal 2025. Over the past 90 days, the Zacks Consensus Estimate for its earnings per share has moved 3.4% north to $3.00.

The Zacks Consensus Estimate for second-quarter fiscal 2025 revenues is pegged at $284.5 million, implying a 16.8% rise from the year-ago reported number.

Key Picks

Some better-ranked stocks are Globus Medical, Inc. (GMED - Free Report) , Intuitive Surgical, Inc. (ISRG - Free Report) and Boston Scientific Corporation (BSX - Free Report) .

Globus Medical, sporting a Zacks Rank #1 (Strong Buy) at present, has an estimated long-term growth rate of 12.7%. GMED’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 10.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Globus Medical’s shares have gained 18% against the industry’s 0.1% decline in the past year.

Intuitive Surgical, flaunting a Zacks Rank of 1 at present, has an estimated long-term growth rate of 17.4%. ISRG’s earnings surpassed estimates in each of the trailing four quarters, with the average being 8.9%.

Intuitive Surgical has gained 36.9% against the industry’s 0.1% decline in the past year.

Boston Scientific, carrying a Zacks Rank of 2 (Buy) at present, has an estimated long-term growth rate of 12.5%. BSX’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 7.5%.

Boston Scientific’s shares have rallied 42.3% against the industry’s 1.9% decline in the past year.

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