On Tuesday, Goldman Sachs (NYSE:GS) maintained its Buy rating on Bright Horizons (NYSE:BFAM) Family Solutions Inc. (NYSE:BFAM) stock and increased its price target to $162 from $142. The firm recognized the company's robust third-quarter performance, which included revenue and earnings per share (EPS) that exceeded both Goldman Sachs' forecasts and the consensus.
Bright Horizons has reported a rise in the number of centers with occupancy rates over 70%, reaching a 42% mix in the third quarter, up from 36% in the previous year. Concurrently, the percentage of centers with less than 40% occupancy decreased to a 13% mix from 17%.
The company's occupancy rates have shown improvement, registering in the low-60s during the quarter, which is an increase from the 58-60% range in the same period last year. However, these rates have seen a seasonal decline from the mid-60s in the second quarter.
Management anticipates that occupancy rates will stabilize at the current levels through the fourth quarter, due to normal seasonal patterns, with expectations for a resumption of growth in the second quarter of 2025.
Bright Horizons' backup care services were highlighted as a significant source of revenue surprise in the third quarter, contributing to its growth. The increase in employee engagement and utilization, along with new employer partnerships, has bolstered this segment.
Goldman Sachs projects that Bright Horizons is on a path to generate substantial revenue growth and benefit from significant operating leverage at its child care centers as occupancy rates continue to approach pre-COVID levels, which were above 70%.
In summary, Goldman Sachs has reaffirmed its confidence in Bright Horizons' business model and its ability to capitalize on the recovering market, as reflected in the raised 12-month price target to $162.
In other recent news, Bright Horizons Family Solutions Inc. reported an 11% increase in third-quarter revenue for 2024, reaching $719 million. The company's backup care segment played a significant role in this growth, witnessing an 18% rise in revenue to $202 million.
The adjusted earnings per share (EPS) also saw a 26% growth, hitting $1.11. Meanwhile, the full-service child care segment reported a 9% revenue increase to $487 million, aided by the addition of six new centers.
Despite low single-digit enrollment growth and a seasonal drop in average occupancy, Bright Horizons has refined its full-year revenue guidance to approximately $2.675 billion and adjusted EPS to a range of $3.37 to $3.42.
The company anticipates continued low single-digit enrollment growth and expects price increases to taper from 5% to around 4% in 2025. These are recent developments in the company's performance and outlook.
InvestingPro Insights
Building on Goldman Sachs' positive outlook for Bright Horizons Family Solutions Inc. (NYSE:BFAM), recent data from InvestingPro provides additional context to the company's financial performance and market position.
BFAM's revenue growth of 14.72% over the last twelve months aligns with Goldman Sachs' observations of robust performance and increasing occupancy rates. This growth is further supported by a strong revenue increase of 11.08% in the most recent quarter, indicating sustained momentum in the company's core business.
InvestingPro Tips highlight that BFAM's net income is expected to grow this year, which corroborates Goldman Sachs' projection of substantial revenue growth and improved operating leverage. Additionally, the company's high return over the last year, with a 54.44% price total return, reflects investor confidence in BFAM's recovery strategy and market position.
However, investors should note that BFAM is trading at a high P/E ratio of 75.83, suggesting the market has priced in significant growth expectations. This valuation metric underscores the importance of the company meeting or exceeding the occupancy and revenue growth targets outlined in Goldman Sachs' analysis.
For readers interested in a deeper dive into BFAM's financial health and market prospects, InvestingPro offers 13 additional tips, providing a comprehensive view of the company's investment potential.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.