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On Tuesday, Baird made adjustments to its outlook on Bright Horizons (NYSE:BFAM) shares, a provider of childcare and early education services. The firm increased the company's price target to $140.00, moving up from the previous figure of $131.00. Despite this change, Baird chose to maintain a Neutral rating on the stock.
The adjustment follows Bright Horizons' recent financial performance, which included third-quarter revenues slightly surpassing consensus estimates and adjusted earnings per share (EPS) that not only exceeded consensus but also outperformed the company's own guidance range. This success was attributed to the continued strong performance of the company's Back-Up Care services.
Nevertheless, the Full Service childcare segment showed a more mixed outcome. While revenue in this area grew by 9.4%, it fell short of the company's guidance, which forecasted growth between 9% and 11%. Additionally, the same-center enrollment growth has decelerated, now only increasing at a low single-digit percentage rate.
Looking ahead, Bright Horizons has narrowed its revenue guidance for its Full Service segment to the lower half of the prior range for 2024. Early commentary regarding the 2025 outlook for the Full Service segment suggests that current consensus estimates might need to be reduced.
In response to these developments, Baird also updated its Suitability rating for Bright Horizons, shifting it to 'Average Risk'. This suggests that while there are positive aspects to the company's performance, particularly in the Back-Up Care service, there are also areas of caution, particularly regarding the Full Service segment's growth and future revenue projections.
In other recent news, Bright Horizons Family Solutions Inc. has reported an 11% increase in third-quarter revenue for 2024, reaching $719 million, with a significant contribution from its backup care segment which saw an 18% rise in revenue to $202 million. The company's adjusted earnings per share (EPS) also saw a 26% growth, hitting $1.11.
Despite low single-digit enrollment growth and a seasonal drop in average occupancy, the company refined its full-year revenue guidance to approximately $2.675 billion and adjusted EPS to a range of $3.37 to $3.42.
Jefferies and Goldman Sachs have maintained their Buy ratings on the company, with Jefferies setting a price target of $155, while Goldman Sachs increased its price target to $162 from $142. Both firms highlighted Bright Horizons' robust performance and potential for margin improvement, especially due to success in the backup care segment, sustainable pricing strategies, and the normalization of enrollment and staffing levels.
The company's management expects continued low single-digit enrollment growth and projects that price increases will taper from 5% to around 4% in 2025. These are recent developments in the company's performance and outlook.
InvestingPro Insights
Bright Horizons' recent financial performance and Baird's updated outlook can be further contextualized with real-time data from InvestingPro. The company's market capitalization stands at $7.71 billion, reflecting its significant presence in the childcare and early education sector. Bright Horizons has demonstrated strong revenue growth, with a 12.67% increase over the last twelve months as of Q3 2024, aligning with the company's reported success in its Back-Up Care services.
InvestingPro Tips highlight that Bright Horizons is expected to see net income growth this year, which supports Baird's decision to raise the price target. However, the stock is trading at a high P/E ratio of 75.83, which may warrant caution and aligns with Baird's maintained Neutral rating.
This high valuation multiple suggests that investors are pricing in significant future growth, potentially reflecting the mixed outlook between the company's Back-Up Care success and the Full Service segment's challenges.
For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for Bright Horizons, providing a deeper understanding of the company's financial health and market position.
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