This article was originally published on TipRanks.com
Equity-Health (HQY) is a U.S. Health Savings Accounts (HSA) administrator. The company recently made several acquisitions as part of expansion projects. For example, the company is acquiring 87,000 HSAs with $ 1.3 billion in assets from HealthSavings in a transaction it plans to close in the first fiscal quarter of 2023.
The company recently paid $ 455 million to acquire another HSA custodian. The transaction added 580,000 accounts with $ 1.9 billion in assets to HealthEquity’s portfolio.
HealthEquity also acquired the HSA portfolio from Fifth Third Bank, adding 157,000 accounts. In 2019, HealthEquity acquired WageWorks and aims to achieve $ 80 million in synergies by the end of fiscal 2022. It has already achieved $ 75 million in synergies.
For the fiscal third quarter 2022 ended October 31, HealthEquity reported revenue of $ 180 million. This marked a modest increase from $ 179.4 million in the same quarter last year, but missed the consensus estimate of $ 185.1 million. The company posted adjusted EPS of $ 0.35, down from $ 0.41 in the same quarter last year, but hit the consensus estimate.
With that in mind, we used TipRanks to review the new added risk factors for HealthEquity.
According to the new TipRanks risk factor tool, HealthEquity’s main risk category is Finance and Corporate, representing 38% of the total of 52 risks identified for the stock. Technology and innovation and law and regulation are the next two main risk categories, each representing 17% of total risk. HealthEquity recently updated its profile with three new financial and corporate risk factors.
The company informs investors that it is heavily in debt. It mentions the recent borrowing of $ 600 million through the offering of notes due 2029 at a coupon rate of 4.50%. In addition, HealthEquity has entered into a $ 1.35 billion credit agreement that covers a term loan and a revolving credit facility. The company says it could borrow more in the future. But he warns that it could be required to devote a large portion of its cash flow to debt service payments, which would reduce the amount of cash available for investments and financing transactions. Additionally, HealthEquity warns that carrying a substantial amount of debt could make it vulnerable to economic downturns and put it at a competitive disadvantage relative to its less-indebted rivals.
HealthEquity advises investors that its credit agreements may limit its ability to raise future financing on favorable terms. In addition, the agreements come with certain restrictions on how the business should operate and require the business to maintain certain financial ratios. HealthEquity warns that failure to meet the terms of the agreements could result in default and allow lenders to proceed on assets used as collateral for loans.
The company advises investors that the success of the additional acquisition will depend on its ability to properly integrate it into its existing business. However, the onboarding process could face challenges that could disrupt HealthEquity’s existing operations or result in the loss of key personnel. Therefore, HealthEquity cautions that it may not fully realize the expected benefits of the acquisition, which could adversely affect its financial position and results of operations.
The sector average of the Finance and Corporate risk factor is 57%, compared to 38% for HealthEquity. HealthEquity stock is down 36% year-to-date.
The analysts’ point of view
Following the HealthEquity earnings report, Raymond James analyst Charles Peters reiterated a buy note on HealthEquity stock, but lowered the price target to $ 70 from $ 90. Peters’ lower price target still suggests upside potential of 57.55%. The analyst mentioned that the lower price target reflects short-term headwinds after the company lowered its guidance for fiscal 2022.
The consensus among analysts is a strong buy based on 8 buys and 2 takes. the HealthEquity average price target of $ 63.67 implies a potential upside of 43.30% from current levels.
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