On Friday, Bright Horizons (NYSE:BFAM) received an upgrade in its stock rating by Baird from Neutral to Outperform, accompanied by a new price target set at $140.00. The firm's decision comes in the wake of a substantial decline in the company's share price, which Baird views as an opportunity for investors given the stock's now attractive valuation. Bright Horizons is currently trading at a forward earnings multiple of 23.7 times the projected adjusted earnings per share for 2026.
The analyst at Baird highlighted the strong performance of Bright Horizons' Back-Up Care business, which has become the majority contributor to the company's profit. This segment is expected to continue its positive trajectory. Additionally, the Full Service segment, although experiencing some deceleration in its recovery, is still on a path to improvement with significant potential for margin enhancement.
The combination of the robust growth in the Back-Up Care business and the recovery potential in the Full Service segment is anticipated to drive strong consolidated growth for Bright Horizons. The analyst also suggested that if the Full Service margins substantially improve, there could be a considerable expansion in the relative valuation multiples for the company's stock.
The upgrade reflects Baird's confidence in Bright Horizons' business model and its ability to capitalize on the current market conditions. The firm's analysis indicates that despite the recent slowdown in the Full Service segment's recovery, the overall health of the company and its growth prospects remain solid.
Bright Horizons is known for providing child care and early education, back-up care, educational advisory services, and other workforce solutions. Its financial performance is closely watched by investors who consider the company as a leading player in the education and care service industry. With the new price target and upgraded rating, Baird signals its belief in the company's potential for future growth and market performance.
In other recent news, Bright Horizons Family Solutions Inc. reported an 11% increase in third-quarter revenue for 2024, reaching $719 million, with its backup care segment contributing significantly with an 18% rise in revenue to $202 million. The company's adjusted earnings per share (EPS) also saw a 26% growth, hitting $1.11. Despite low single-digit enrollment growth and a seasonal drop in average occupancy, Bright Horizons refined its full-year revenue guidance to approximately $2.675 billion and adjusted EPS to a range of $3.37 to $3.42.
BMO Capital Markets upgraded Bright Horizons stock from Market Perform to Outperform, adjusting the price target to $125. The firm views the recent sell-off in Bright Horizons' shares as an opportunity for investors to buy at an attractive price. Other analyst firms, including Baird, Jefferies, and Goldman Sachs (NYSE:GS), also provided updates on Bright Horizons. Baird increased the company's price target to $140, maintaining a Neutral rating, while Jefferies and Goldman Sachs maintained their Buy ratings, with price targets of $155 and $162 respectively.
The company's Full Service childcare segment showed a mixed outcome with a 9.4% revenue growth, falling short of the company's guidance. Looking ahead, the company has narrowed its revenue guidance for this segment to the lower half of the prior range for 2024. The company expects continued low single-digit enrollment growth and projects that price increases will taper from 5% to around 4% in 2025. These are recent developments in the company's performance and outlook.
InvestingPro Insights
Adding to Baird's optimistic outlook on Bright Horizons (NYSE:BFAM), recent data from InvestingPro provides additional context for investors. The company's revenue growth of 12.67% over the last twelve months as of Q3 2024 aligns with Baird's positive view on the company's consolidated growth. This growth is further supported by a robust EBITDA growth of 52.91% over the same period, indicating strong operational performance.
InvestingPro Tips highlight that net income is expected to grow this year, reinforcing Baird's perspective on the company's potential for improvement. However, it's worth noting that the stock is trading at a high P/E ratio of 54.97, which may be a consideration for value-conscious investors.
Despite the recent upgrade, InvestingPro data shows that the stock has fared poorly over the last month, with a -14.92% price return. This recent dip could be seen as the buying opportunity that Baird is referencing in their upgrade rationale.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Bright Horizons, providing a deeper dive into the company's financial health and market position.
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