HealthEquity Acquires WageWorks, To Make Notable Investments

HealthEquity, Inc. HQY recently completed the previously-announced acquisition of WageWorks for a deal value of $2 billion. Additionally, the company announced an $80-$100 million investment. With the WageWorks customer care, HealthEquity expects to expand its digital and live member engagement capabilities, simplify administration for employers and strengthen data security and privacy protections across all of its new consumer-directed benefits (CDBs) offerings. Notably, HealthEquity expects to complete its investment program within 24-36 months from now.

Following the announcement, shares of this Zacks Rank #3 (Hold) company rallied 0.5% to $59.36 at the close of the trading session on Aug 30.

These developments are likely to establish HealthEquity as a leading administrator of health savings accounts (HSAs) and complementary CDBs with a view to reduce healthcare costs.

On HSA

HealthEquity is an Internal Revenue Service approved non-bank custodian of HSA, which is a medical savings account available to taxpayers in the United States who are enrolled in a high-deductible health plan.

As of Apr 30, 2019, the total number of HSAs for which HealthEquity served as a non-bank custodian, was 4.1 million, up 17% year over year. Additionally, total Active HSA Members were 3.2 million, up 13% year over year.

Reducing Healthcare Costs — The Need of the Hour

U.S. healthcare spending is expected to rise 4% in 2019 to $3.6 trillion (going by a report of FierceHealthcare), thanks to an expensive mix of treatments, rising drug costs and high administrative costs of running healthcare systems. Currently, healthcare costs comprise 17.8% of U.S. GDP.

Resultantly, employers now offer HSAs to employees which have risen 12% over the last five years.

Also, Pharmacy Benefit Managers like CVS Health CVS play a pivotal role in negotiating with manufacturers to lower the price of prescription drugs.

Market Prospects

Per an article by ASPPA, HSA providers project industry growth of 16% in 2019. Healthcare account investment expert Devenir estimates that the HSA market worth will be near $75 billion in 2020.

Hence, the latest developments have been well-timed for HealthEquity.

Price Performance

Year to date, shares of HealthEquity have slipped 0.5%, compared with the industry’s 10.7% decline.

Key Picks

A few better-ranked stocks in the broader medical sector are Baxter International BAX and Masimo Corporation MASI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Baxter’s long-term earnings growth rate is expected to be 12.8%.

Masimo’s long-term earnings growth rate is projected at 20.5%.

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