This stock could get an Obamacare boost

Looking for a company that might benefit from the Affordable Care Act? Consider WageWorks.

By Zacks.com Oct 3, 2013 1:56PM

Image: Person signing paperwork, mid section © PhotoAlto/Eric Audras/PhotoAlto Agency RF/Getty ImagesBy Kevin Cook

 

Looking for a company that could benefit from the Affordable Care Act?


Consider WageWorks (WAGE), a $1.7 billion provider of benefits administration for corporations.


WageWorks administers and operates an array of "consumer-directed benefit" solutions, including spending account management programs such as health and dependent care flexible spending accounts, health savings accounts and health reimbursement arrangements along with commuter benefits such as transit and parking programs.


While analysts are optimistic about WageWorks' prospects in the new health care exchange environment, the stock has run pretty far this year to capture that sentiment, as you can see in the chart below which shows a solid 3-bagger.


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The health care exchange opportunity

WageWorks has a partnership with one of the most well-known private employee exchanges, Towers Watson. Towers has said its active employee exchange, which has recently been formed, will add two employers with 40,000 employees on Jan. 1 along with its own employees. We believe it is possible Towers will add several hundred thousand employees in 2015 and many more in subsequent years.


Analysts at William Blair believe "there are many other companies considering private healthcare exchanges and we believe that WageWorks is having conversations with several current and potential industry participants."


Consulting firm Accenture (ACN) aggressively forecasts that there will be 40 million active employees in healthcare exchanges by 2018, up from 1 million in 2014. WageWorks has about a 10% market share in consumer-directed healthcare benefits today with 2.1 million customers.


Growing into its multiple

This is not a cheap stock by any means, trading over 60 times 2014 estimates. But the earnings growth is there as you can see in the table below. And if the opportunities described above should develop, this EPS trajectory looks set to continue because the estimates here do not account yet for this growth potential.


 

 

 


 

 

 

 

 

 

Also note that we currently only have two analysts providing estimates for WageWorks. Therein also lies opportunity as other Wall Street houses initiate coverage and give us a broader view of the investment potential. With a string of earnings beats behind it averaging 22% for the last four quarters, WageWorks should be coming up on more analyst radars.


The other growth factor in WageWorks' favor is acquisitions. The company looks to complete one to three deals per year in a very fragmented industry. There are several hundred small companies in the consumer-directed tax advantaged benefit account industry with between $5 million and $25 million of revenue.


Now that WageWorks is on your radar, keep an eye on the earnings estimate revisions because they will tell you when these growth factors are kicking in and could benefit your portfolio.


Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money portfolio.

 

WAGEWORKS INC (WAGE): Free Stock Analysis Report (email required)
ACCENTURE PLC (ACN): Free Stock Analysis Report (email required)
 
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Tags: ACNWAGE
2Comments
Oct 4, 2013 6:04AM
avatar
Omamacare is other cost of government that we cannot afford. If Obamacare is defunded the stock market should be happy.
Oct 4, 2013 8:52AM
avatar

After Obamacare is implemented almost no one in the working class tax bracket will have the disposable income to buy the stock in this article (not that the working class buy stock anyway).

 

 As for Obamacare, I predict by no later than 2025 the following things will happen:

 

  1. Unemployment and underemployment will skyrocket

  2. Everyone that voted yes in favor of Obamacare will be thrown out of office.

  3. Consumer spending will grind to a halt because most people won't have any disposable income to spend.

  4.  Massive abuse of the exchange system and the financial database they are constructing will occur.

  5.  A mass exodus of US citizens  to other countries will happen.

  6.  Social unrest will increase throughout the country.

  7. Obamacare will be repealed.

 

Those are just a few of the obvious consequences of Obamacare I can think of off the top of my head.  There are probably lot more less obvious second and third order effects that will arise. 

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