fbpx

Bright Horizons Family Solutions Provides On-Site Childcare

Stock (Symbol)

Bright Horizons Family Solutions (BFAM)

Stock Price

$66

Sector
Food & Necessities
Data is as of
November 10, 2016
Expected to Report
Feb 6 – 10
Company Description
brighthorizonsBright Horizons Family Solutions Inc. is a provider of child care, early education and other services. The Company provides services under multi-year contracts with employers offering child care and other dependent care solutions. The Company’s segments include full service center-based care services, back-up dependent care services and other educational advisory services. Full service center-based care segment includes center-based child care, preschool and elementary education. Back-up dependent care segment includes center-based back-up child care, in-home well child care, in home mildly ill child care and adult/elder care. Its other business services are included in the other educational advisory services segment, which includes its college preparation and admissions advisory services as well as tuition reimbursement administration and educational advising services. The Company has over 1,000 client relationships with employers across an array of industries. Source: Thomson Financial
Sharek’s Take
David Sharekright Horizons Family Solutions (BFAM) is a provider of on-site employer sponsored childcare in the US that’s recently expanded into Canada, UK, Ireland, the Netherlands and India. It has 940 locations mostly the employer’s site with the capacity to serve 1000 clients mostly and 100,000 children. Bright Horizons has long-term contracts with blue chip companies that co-fund the capital investment, then provide 20% of the childcare costs, with 80% being paid out-of-pocket by the employee. Clients include JPMorgan Chase, IBM, Cisco and Johnson & Johnson. The company has been in business 30 years and has grown 30% through acquisition. It also has more retail locations called consortiums which are centrally located centers that support multiple companies (there’s one in Columbus Circle). BFAM’s recently expanded into elder care/senior care which has better profit margins, thus profits grow faster than sales. Tuition prices range from $17,000 (pre-school) to $30000 (infant care) per year. Teachers make $10 – $20 an hr. The company estimates revenue growth in the 8-10% range and profit growth in the 15-20% range, which makes BFAM a fit for the Growth Portfolio. Unfortunately not a great fit — at this time anyway. With a P/E of 27 BFAM is within 5% of my 2017 Fair Value so it’s on the radar — for now. It’s CEO spoke at the Baron Fund conference, so I know the company passes the test for safety as Baron owns the stock and likes long-term compounders.
One Year Chart
bfam_2016_q4So this stock has been in a tight trading range all year. Why? In years past the P/E was around 30 while profits grew 22%-28%. Notice here growth has been around 15% the past two qtrs. So the P/E has fallen with the growth rate — which is natural. Last qtr BFAM delivered 14% profit growth on 5% sales growth. The company missed the street by a penny last qtr, met the prior 2 qtrs. That’s not gonna get you momentum in the market. Nice EST LTG of 18% a year — the type of stock we want. Profit Estimates for the next 4 qtrs are 17%, 16%, 13% and 16%. I’m guessing they come in around those marks.
Fair Value
bfam_2016_q4_phBright Horizons used to be publicly traded years ago, then went private, and public again in 2013. I used to admire the stock, but didn’t follow it. This stock has done good — its doubled in three years. My Fair Value is 28x earnings which gives us Fair Values of $70 next year and $80 in 2018. With the stock at $66 (actually as I write this it’s up to $70) I just don’t see a lot of upside.
Bottom Line
bfam_2016_q4_10yrBright Horizons Family Solutions has risen steadily since it IPO’d in January 2013. But over the last year the stock’s treaded water while profit growth slowed a bit. Here in this ten-year chart you can see profit growth was a robust 28% last year, yet is expected to be just 16% this year. With a P/E of 27, I would love to be in this stock — at a lower level. We just missed an entry point this week as the media predicted Clinton to win and that took down stocks related to Healthcare. My goal is to buy this stock in the low $60s. BFAM is on my radar. 
Power Rankings
Growth Stock Portfolio

N/A

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

N/A

Not a member? Sign up here for $25 a month.