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Why HealthEquity Stock Soared 25% in July

Beth McKenna, The Motley Fool

What happened

Shares of HealthEquity (NASDAQ: HQY), which bills itself as "the nation's largest independent health savings account (HSA) non-bank custodian," rocketed 25.4% higher last month, according to data from S&P Global Market Intelligence. The stock is up 34% in 2019 through Aug. 8.

For some context, the S&P 500 index returned 1.4% in July and has returned 18.6% so far this year.

Glass jar filled with various denominations of dollar bills and labelled "Health."

Image source: Getty Images.

So what

We can attribute HealthEquity stock's robust July performance in part to a continuation of the upward momentum it's enjoyed this year, thanks to the company posting better-than-expected financial results. It beat Wall Street's earnings estimates in both quarters that it's reported this year.

In early June, HealthEquity reported its fiscal first-quarter 2020 results. Revenue jumped 25% year over year to $87.1 million, easily surpassing the $84.1 million that analysts had been expecting. GAAP (generally accepted accounting principles) earnings per share (EPS) soared 81% to $0.65, and adjusted EPS rose 24% to $0.41, also easily beating the consensus estimate, which was $0.33. 

Another likely catalyst for the stock's healthy showing in July was investor enthusiasm over the Utah-based company's pending acquisition of WageWorks (NYSE: WAGE), a California-based leader in administering HSAs. On June 27, the companies announced the all-cash, approximately $2 billion deal. 

Moreover, on July 19, shares of HealthEquity popped 3.6% following Bank of America upgrading its rating on the stock to buy from neutral.

Now what

When it reported last quarter's results, HealthEquity increased its full-year guidance for both the top and bottom lines. For fiscal 2020, the company expects revenue to be between $339 million and $345 million, which represents growth of about 18% to 20% year over year. It projects adjusted EPS between $1.28 to $1.34, representing growth of about 8% to 13%.

This outlook was established before the company announced its acquisition of WageWorks, which is expected to close by year's end. 


Beth McKenna has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends HealthEquity. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com