Jefferies reiterated HealthEquity as a buy on Wednesday, noting the company’s favorable position in the health savings account market. Analyst Glen Santangelo placed a price target of $84 on the stock, suggesting shares stand to gain nearly 29% from Wednesday’s close. “With a couple of rate increases and positive preannouncements the past couple of months, we see near-term upside,” Santangelo said in a note to clients on Wednesday. “As the consensus outlook for rates continues to shift to more higher for longer, we believe shares of HQY are not getting credit for the more beneficial market environment.” HealthEquity shares gained 39% in 2022, but the stock is only up about 6% year to date. Santangelo said the stock’s price was highly correlated to 3-year treasury rates until the rates peaked in early November. Since then, the connection has broken down, which can happen as rates fall, he said. However, 3-year treasury rates aren’t far below the November high, Santangelo said. HQY 1Y mountain Shares have added nearly 27% in the past year. Although the stock has “seemingly fallen off investor’s radar screens,” Santangelo noted that the company is highly favored in the HSA market. A Jefferies survey of 35 benefits consultants found that HealthEquity is the HSA provider of choice, ranking just above competitor providers Optum and Fidelity , the strategist noted. Optum is a division of UnitedHealth Group . Santangelo added that the majority of survey responses indicate HSAs have penetrated less than 80% of the employer market, suggesting ample space for additional employers to set up an account. The health financial services company operates about 6.7 million HSAs and manages $18 billion in HSA assets, according to a 2021 press release . More than 60% of survey respondents said HSA adoption will be higher in 2023 versus last year, Santangelo said, supporting the firm’s growth outlook on HealthEquity. Santangelo’s estimates are higher than the Wall Street consensus view for fiscal year 2024 and 2025, he said. “Most importantly, we believe that current consensus estimates underappreciate the impact of higher rates in [fiscal 2025 (calendar year 2024)]. We estimate that if rates hold at the current level the company could generate > 250bps of incremental yield on cash that is re-placed in the upcoming Dec/Jan timeframe,” Santangelo wrote in the note. On Wednesday, the Federal Reserve released minutes from its Jan. 31-Feb. 1 meeting, which concluded with a 0.25 percentage point rate increase. The minutes showed central bank officials are committed to bringing interest rates down and believe “ongoing” rate hikes may be needed to do that. — CNBC’s Michael Bloom contributed to this report.
