KeyBanc cuts HealthEquity stock target to $110, keeps Overweight

On Monday, KeyBanc Capital Markets adjusted its valuation of HealthEquity, Inc. (NASDAQ:HQY), reducing the price target to $110 from $120, while maintaining an Overweight rating on the company’s shares. The adjustment follows HealthEquity’s fourth-quarter results and forward-looking guidance, which included ongoing costs related to reimbursements and investments due to fraud challenges. According to InvestingPro data, the stock has experienced a significant 15.7% decline over the past week, though it maintains a solid financial health score and operates with a moderate debt level.

The firm revised its model for HealthEquity, predicting a decrease in service gross margins to approximately 20% in the first quarter and around 24% in the second quarter, to account for the aforementioned elevated costs. Despite this, KeyBanc analysts suggest that HealthEquity’s management might be taking an excessively cautious stance with their margin outlook for the first half of the year. The company currently maintains a healthy gross profit margin of 64.8%, with its current ratio of 3.06 indicating strong liquidity to handle short-term obligations.

KeyBanc’s analysis indicates two reasons for potential optimism: the substantial increase in HealthEquity’s mobile app downloads over the past year, which could enhance security measures and reduce fraud-related reimbursements, and the possibility of the company retroactively collecting on insurance claims related to these reimbursements. These factors contribute to KeyBanc’s perception of the recent approximately 20% decline in HealthEquity’s stock price on Friday, in contrast to a relatively stable S&P 500, as an attractive buying opportunity.

The research firm remains confident in HealthEquity’s prospects for revenue growth, citing its ability to gain market share within the Health Savings Accounts (HSA) sector through both organic growth and strategic acquisitions. This confidence is bolstered by the company’s strong cash generation, which KeyBanc believes will support future multiple expansion. InvestingPro data reveals impressive revenue growth of 20% in the last twelve months, with analysts expecting continued net income growth this year. For deeper insights into HealthEquity’s growth prospects and 11 additional exclusive ProTips, consider exploring InvestingPro’s comprehensive analysis tools. Despite the lower price target, the firm views the current valuation of HealthEquity’s shares, trading at approximately 15.5 times the next twelve months’ enterprise value to adjusted EBITDA, as a discount compared to its historical multiples.

KeyBanc concludes that HealthEquity’s high-margin HSA assets should continue to strengthen its cash position and that the company’s valuation multiple is likely to recover once concerns surrounding the fraud issues are addressed. The new $110 price target is based on the shares trading at roughly 19.5 times KeyBanc’s reduced adjusted EBITDA estimate for fiscal year 2026.

In other recent news, HealthEquity, Inc. reported a 19% year-over-year increase in fourth-quarter revenue, reaching $311.8 million, which exceeded both BTIG and consensus estimates. Despite this revenue growth, the company’s adjusted EBITDA of $107.8 million fell short of expectations due to $17 million in additional service costs related to fraud mitigation. HealthEquity’s earnings per share (EPS) of $0.69 also missed analyst projections of $0.72. BTIG maintained a Buy rating with a $130 price target, while JMP Securities adjusted its price target to $110, retaining a Market Outperform rating. HealthEquity has raised its revenue guidance for fiscal year 2026, though EBITDA guidance remains slightly below expectations. The company continues to innovate with new product launches, including AI-driven benefits tools and the opening of 471,000 new Health Savings Accounts (HSAs) in the fourth quarter. Despite challenges, analysts express optimism about HealthEquity’s long-term growth, citing new product development and a focus on secure digital experiences.

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