Why Is HealthEquity (HQY) Up 3.5% Since Last Earnings Report?

It has been about a month since the last earnings report for HealthEquity (HQY). Shares have added about 3.5% in that time frame, outperforming the S&P 500.Will the recent positive trend continue leading up to its next earnings release, or is HealthEquity due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers. HealthEquity Q3 Earnings & Revenues Beat Estimates, Gross Margin ExpandsHealthEquity reported adjusted earnings per share of 78 cents in third-quarter fiscal 2025, surpassing the Zacks Consensus Estimate by 9.86%. The bottom line improved 30% on a year-over-year basis.GAAP earnings per share in the fiscal third quarter was 6 cents, down 64.7% from the year-ago quarter’s earnings per share of 17 cents.HealthEquity Revenues in DetailIn the fiscal third quarter, the company generated revenues of $300.4 million, which beat the Zacks Consensus Estimate by 3.84%. The top line improved 23.2% from the prior-year quarter.HSA Details of HQYAs of Oct. 31, 2024, the total number of Health Savings Accounts (HSA) for which HealthEquity served as a non-bank custodian was 9.5 million, up 15% year over year.HealthEquity reported 717,000 HSAs with investments as of Oct. 31,2024, up 21% year over year. Total accounts, as of Oct. 31, were 16.5 million, up 7.8% year over year. This uptick included total HSAs and 7 million Consumer Direct Benefits (CDBs), flat year over year.Total HSA assets were $30 billion at the end of Oct. 31, 2024, up 33% year over year. This included $16.4 billion of HSA cash (up 17.1% year over year) and $13.6 billion of HSA investments (up 58.1% year over year). This figure compares to our fiscal third-quarter HSA cash and HSA investments projection of $16.4 billion and $9.8 billion, respectively. We had projected total HSA assets of $26.2 billion for the fiscal third quarter.Client-held funds, which are deposits held on behalf of HealthEquity’s clients to facilitate the administration of its CDBs and from which the company generates custodial revenues, were $0.7 billion as of Oct. 31, 2024.Revenue Sources of HealthEquityHealthEquity derives revenues from three sources: Service revenues, Custodial revenues, and Interchange revenues.Service revenues totaled $119.2 million in the quarter, up 4.5% year over year. This reflected a higher number of HSAs and invested HSA Assets. This figure compares favorably with our fiscal third-quarter projection of $116.7 million.Custodial revenues totaled $140.9 million, up 40.9% from the year-ago period. Our projection for fiscal third-quarter Custodial revenues was $133.6 million.Interchange revenues totaled $40.3 million, up 14.7% year over year. This figure compares favorably with our fiscal third-quarter projection of $38 million.HQY Margin DetailsIn the quarter under review, HealthEquity’s gross profit rose 23.8% year over year to $197 million. The gross margin expanded 170 basis points (bps) to 65.6%. We had projected the gross margin to be 64.5% in the fiscal third quarter.Sales and marketing expenses rose 15.2% to $22.6 million year over year, whereas technology and development expenses climbed 8.2% year over year to $60.2 million. General and administrative expenses also increased 17.1% year over year to $31.8 million. Total operating expenses of $177.4 million increased 38.3%. Higher merger integration expenses during the fiscal third quarter significantly increased the total operating expenses.  However, operating profit totaled $19.6 million, declining 36.5% from the prior-year quarter. Operating margin in the quarter contracted 590 bps to 6.5% compared with the prior-year quarter.Financial Position of HQYThe company exited the third quarter of fiscal 2025 with cash and cash equivalents of $322.2 million compared with $326.9 million at the end of the fiscal second quarter of 2025. Total debt (net of issuance costs) at the end of third-quarter fiscal 2025 was $1.08 billion compared with $1.1 billion at the end of the second quarter of fiscal 2025.Cumulative net cash provided by operating activities at the end of third-quarter fiscal 2025 totaled $264.1 million compared with $165.8 million a year ago.HQY's FY25 GuidanceHealthEquity has upped its revenue and earnings per share projections for fiscal 2025.For fiscal 2025, revenues are now projected to be between $1,185 million and $1,195 million, up from the previous outlook of $1,165 million-$1,185 million. The Zacks Consensus Estimate is currently pegged at $1.18 billion.Adjusted earnings per share is now expected to be in the range of $3.08-$3.16, up from the earlier guidance of $2.98-$3.14. The Zacks Consensus Estimate currently stands at $3.11.How Have Estimates Been Moving Since Then?In the past month, investors have witnessed a downward trend in estimates review.VGM ScoresAt this time, HealthEquity has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.OutlookEstimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, HealthEquity has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.1% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report HealthEquity, Inc. (HQY): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks