On Wednesday, BofA Securities updated its outlook on HealthEquity, Inc (NASDAQ:HQY), increasing the price target to $97.00 from the previous $93.00. The firm has maintained a Buy rating on the stock. This adjustment follows HealthEquity's recent report of a robust financial quarter, particularly noting effective expense management within its Technology & Development sector.
The company's fiscal year 2025 revenue and EBITDA guidance aligned with current market expectations, reflecting a consensus among Wall Street analysts. HealthEquity's strategy, which involves continuing mergers and acquisitions within its portfolio and investing in internal innovations, is seen as relatively low risk and is expected to double adjusted earnings per share over the next three years.
HealthEquity, recognized as the largest vendor in its market, is uniquely positioned to both invest in its own operations and acquire assets that may not be accessible to competitors. These strategic advantages are becoming increasingly evident, enhancing the company's ability to mitigate potential downside risks.
The firm also anticipates HealthEquity to start realizing operating leverage in its Technology & Development division, which has constrained EBITDA growth in the past two years. With efficient execution and clear visibility into future growth, HealthEquity is poised to outpace market growth with substantial operating leverage stemming from higher custodial rates and operational enhancements.
In explaining the rationale behind the raised price target, BofA Securities cited the company's strong execution and clearer path to earnings growth, warranting an increase in the target multiple from 18.5 times to 20-21 times CY24E EV/EBITDA.
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