HealthEquity (HQY) Stock Forecast & Price Target

HealthEquity Inc. reported a substantial increase in total accounts, reaching 7.153 million, which reflects a year-over-year growth of 5.3%. The company's custodial revenue surged by 15.3% to $159.9 million, driven by an increase in the average annualized yield on HSA cash and a $0.7 billion rise in the average daily balance of HSA cash, indicating strong financial health and consumer engagement with their accounts. Additionally, total revenue for Q2 increased by 8.6% to $325.8 million, supported by robust growth in custodial revenue and an increase in interchange revenue, illustrating the company's solid position in the healthcare financial services sector.

HealthEquity's stock has experienced a decline of 7% year-to-date, despite a notable 45% increase earlier in 2024, and is currently trading at 6.4 times the updated revenue estimates for FY/26, which is below both its five-year average of 6.9 times and the peer group average of 7.6 times. Additionally, the company's projected adjusted EBITDA for FY/27 has been revised downward to $617.5 million, representing an 11.1% year-over-year increase, yet remains lower than previous estimates, indicating potential weakness in profitability metrics. Key risks affecting HealthEquity's outlook include increased competition, regulatory changes, and the impact of falling interest rates on investment returns, all of which may hinder its growth trajectory in a challenging market environment.