Jefferies downgrades Bright Horizons stock citing enrollment plateau

Investing.com - Jefferies downgraded Bright Horizons (NYSE:BFAM) stock rating to Hold from Buy on Monday, while lowering its price target to $135.00 from $146.00. The company, currently trading at $122.33, shows mixed signals with a perfect Piotroski Score of 9 according to InvestingPro data, indicating strong financial health.

The research firm cited concerns about enrollment plateauing at the child care provider due to structural changes in the workplace and education landscape. Jefferies specifically pointed to hybrid work arrangements and universal pre-kindergarten programs as factors limiting enrollment growth potential.

The downgrade also reflected Jefferies’ view on "pricing fatigue by parents" as another constraint on the company’s growth prospects. These factors collectively contributed to the more cautious stance on Bright Horizons’ business outlook.

Jefferies expressed concerns that adjusted operating margins would "remain pressured, below pre-COVID levels in the medium term," suggesting ongoing profitability challenges for the company. This margin pressure represents a key element in the firm’s revised assessment.

The new $135 price target assumes approximately 17 times Jefferies’ 2026 EBITDA estimate for Bright Horizons, which the firm noted is "in line with its pre-COVID avg. on lower growth and margin."

In other recent news, Bright Horizons Family Solutions reported strong financial results for Q1 2025, surpassing analysts’ expectations. The company achieved an adjusted EPS of $0.77, exceeding the forecast of $0.64, and reported revenue of $666 million, slightly above the anticipated $665.42 million. This performance marked a 7% year-over-year revenue increase, driven by a 6% rise in Full Service Child Care revenue and a 12% increase in Backup Care revenue. Additionally, Bright Horizons raised its revenue growth guidance for the year to 6.5%-8.5%.

In another development, Bright Horizons announced a new share repurchase program, authorizing the buyback of up to $500 million of its common stock. This new authorization replaces the previous $400 million program from December 2021. The company plans to execute the repurchases through various means, including open market transactions.

During its annual shareholder meeting, Bright Horizons re-elected three directors to its board and approved the 2024 compensation for its executive officers. The shareholders also ratified Deloitte & Touche LLP as the independent registered public accounting firm for the fiscal year ending December 31, 2025.

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