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Bright Horizons Brings Childcare to the Workplace

Stock (Symbol)

Bright Horizons Family Solutions (BFAM)

Stock Price

$78

Sector
Food & Necessities
Data is as of
June 20, 2017
Expected to Report
Aug 1
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. The Company has over 1,000 client relationships with employers across an array of industries. Source: Thomson Financial
Sharek’s Take
David SharekBright Horizons Family Solutions (BFAM) continues to churn higher as profit growth heats up. Bright Horizons is a provider of on-site employer sponsored childcare. It 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. Bright Horizons has 1000 clients with the capacity to serve 100,000 children. Clients include JPMorgan Chase, IBM, Cisco and Johnson & Johnson. Last qtr the company added client centers for General Mills, Overstock and Fox Entertainment. BFAM also has more retail locations called consortiums, which are centrally located centers that support multiple companies (there’s one in Columbus Circle). Primarily located in the US, Bright Horizons recently expanded into Canada, UK, Ireland, the Netherlands and India, but the UK operations had been a pull on profit growth due to currency exchange rates. Tuition prices range from $17,000 (pre-school) to $30000 (infant care) per year. Teachers make $10 – $20 an hr. BFAM has also gotten into into elder care/senior care which has better profit margins, thus profits grow faster than sales. Management estimates revenue growth in the 8-10% range and profit growth of 20% this year, which puts the stock on my radar for the Growth Portfolio. The stock has a P/E of 30, which I feel is fair but high in comparison to the Estimated Long-Term Growth Rate of 18% per year. I am waiting patiently for the opportunity to buy this stock on a pullback. $70 would be a good price.
One Year Chart
BFAM reported profit growth of 20% last qtr, which beat estimates of 10%. Revenue rose 10%. Profit growth seems to be accelerating, from around 15% a couple qtrs ago to 20% now. Estimates for the next 4 qtrs are 18%, 24%, 22% and 10% (this one needs time to bake). BFAM has a solid Est. LTG of 18% per year. 
Fair Value
Bright Horizons originally went public in 1997, then went private in 2008, struggled through the financial crisis, and went public once again in 2013. My Fair Value on this stock is 31x earnings, which is high but is what the median P/E has been the last two years. There isn’t much upside to my Fair Value, so I’m looking to get in at a better price.
Bottom Line
Bright Horizons Family Solutions has risen steadily since its recent IPO, and that’s a good thing. With the stock market showing a bit of weakness recently, perhaps we can get in at a better price. The upside from here isn’t that great. My goal is to buy in for the Growth Portfolio around $70 a share.
Power Rankings
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