Will HSA Member Growth Aid HealthEquity's (HQY) Q3 Earnings?

HealthEquity, Inc.’s (NASDAQ:HQY) third-quarter fiscal 2019 results are scheduled to release on Dec 4, after market close.

Notably, solid Health Savings Accounts (HSA) member growth is expected to boost HealthEquity’s top line. However, cutthroat competition in the Medical Services markets is likely to hurt bottom-line growth to some extent.

Fiscal Q2 at a Glance

In the last reported quarter, HealthEquity posted earnings of 34 cents per share, which surpassed the Zacks Consensus Estimate of 28 cents.

Revenues amounted to $71.1 million, up 24.9% year over year. The top line marginally outpaced the Zacks Consensus Estimate of $70 million.

Additionally, HealthEquity delivered an average four-quarter positive earnings surprise of 15.7%.

Which Way Are Estimates Headed?

The Zacks Consensus Estimate for third-quarter revenues is pegged at $69.8 million, reflecting 22.8% improvement year over year. The same for earnings is pinned at 25 cents, mirroring year-over-year growth of 47.1%.

Let’s delve deeper.

HealthEquity, Inc. Price and Consensus

Factors at Play

HealthEquity is expected to register solid HSA member growth in the third quarter. In the last reported quarter, the total number of HSA for which HealthEquity served as a non-bank custodian (HSA Members) was 3.6 million, up 23% year over year. We expect the trend to continue in the fiscal third quarter as well.

Moreover, HealthEquity’s automated investment advisory services are likely to act as a key catalyst behind the company’s performance in the quarter to be reported. Particularly, the company’s web-based AdvisorTM platform, which is offered and managed by HealthEquity Advisors, LLC, is expected to rake in huge profits.

Buoyed by the solid prospects, HealthEquity projects revenues in the range of $279-$285 million for fiscal 2019, up from $278-$284 million anticipated earlier. Adjusted income is expected in the $67-$71 million band, up from the previous guidance of $55-$59 million. Adjusted net income is expected between $1.05 and $1.11 per share.

However, HealthEquity is not immune to challenges from other HSA custodians that include state or federally chartered banks— Webster Bank and Optum Bank. Also, it faces stiff competition from non-bank custodians approved by the U.S. Treasury such as Payflex Systems USA, Inc. This, in turn, might prove to be a dampener for the company in the quarter to be reported.

What Does Our Model Say?

According to the Zacks model, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to deliver an earnings beat in the quarter. However, this is not the case here.

Earnings ESP: HealthEquity has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: HealthEquity carries a Zacks Rank #3.

Please note that we caution against stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revision.

Stocks Worth a Look

Here are a few stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

The Cooper Companies (NYSE:COO) has an Earnings ESP of +2.26% and a Zacks Rank #3.

Burlington Stores, Inc. (NYSE:BURL) has an Earnings ESP of +2.95% and a Zacks Rank #2.

AutoZone (NYSE:AZO) has a Zacks Rank #2 and an Earnings ESP of +3.02%.

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