On Tuesday, KeyBanc has increased its price target for HealthEquity, Inc (NASDAQ:HQY) to $100, up from the previous target of $95, while keeping an Overweight rating on the shares. The adjustment follows the company's first-quarter results, which prompted the firm to revise its estimates due to improved custodial yields.
HealthEquity has seen its enhanced rate products surpass 35% and is expected to continue growing, potentially reaching around 60% by 2027. KeyBanc believes that the company is strategically positioned to expand its revenue by capturing more of the Health Savings Accounts (HSA) market. This growth is anticipated to come both from organic means and through strategic acquisitions.
The firm also recognizes HealthEquity's efforts to grow its enhanced rate business and the utilization of artificial intelligence to advance its financial performance. According to KeyBanc, HealthEquity's shares are currently trading at a multiple of approximately 16.5 times the next twelve months' enterprise value to adjusted EBITDA. This is seen as a discount compared to its previous multiple range of 30-40 times before the acquisition of WageWorks (WAGE).
The robust, high-margin HSA assets of HealthEquity are believed to contribute to a solid cash position that could support a higher valuation multiple. KeyBanc's new price target of $100 reflects this anticipated multiple expansion, which is based on the company’s execution and its shares trading at roughly 8 times the firm's fiscal year 2025 revenue estimate and about 20.5 times its fiscal year 2025 adjusted EBITDA estimate.
The Overweight rating suggests that KeyBanc continues to view HealthEquity as an attractive investment, with expectations for the company to outperform the average market return. The raised price target indicates a confidence in the company's ability to grow and deliver value to its shareholders through strategic initiatives and market performance.
InvestingPro Insights
In light of HealthEquity, Inc's (NASDAQ:HQY) recent performance and KeyBanc's updated price target, certain real-time metrics and InvestingPro Tips provide additional context. HealthEquity is currently trading with a market capitalization of $7.27 billion and a high P/E ratio of 88.17, which is anticipated to align more closely with its near-term earnings growth, having a PEG ratio of 0.41. This suggests that investors are paying a premium for the expected growth in earnings. The company's revenue has also shown a healthy growth of 15.8% over the last twelve months as of Q1 2025, indicating a solid upward trajectory.
From an operational standpoint, HealthEquity's gross profit margin stands at an impressive 63.42%, with an operating income margin of 12.82%. This reflects a strong profitability in its core operations. Additionally, the company's stock has been performing well, trading near its 52-week high, at 97.6% of the peak price.
InvestingPro Tips highlight that HealthEquity is expected to grow its net income this year and is trading at a high EBIT and EBITDA valuation multiple. Moreover, analysts have revised their earnings downwards for the upcoming period, which may warrant investor caution. The company's stock is generally characterized by low price volatility and is predicted to remain profitable, as it has been over the last twelve months. Notably, HealthEquity does not pay a dividend, which could influence investment decisions for income-focused shareholders.
For those seeking an in-depth analysis, there are additional InvestingPro Tips available that can be accessed with the promo code PRONEWS24 for an extra 10% off a yearly or biyearly Pro and Pro+ subscription. This includes a comprehensive list of 14 tips on HealthEquity, offering valuable insights for investors considering this stock.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.