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Bright Horizons Continues To Move Higher

Stock (Symbol)

Bright Horizons Family Solutions (BFAM)

Stock Price

$80

Sector
Food & Necessities
Data is as of
September 11, 2017
Expected to Report
Oct 30
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) stock continues to move higher as a strong economy has helped profit growth eclipse 20% last qtr. 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. BFAM is a solid stock — one that I have tracked for almost a year yet haven’t pulled the trigger on to buy yet. Meanwhile the stock has risen from around $70 to more than $80 as I sit on my hands. I’m trying to get the stock on a dip in price, as the 2017 upside to my Fair Value is limited. BFAM has a P/E of 30 which I feel is high for a childcare center with an Est. LTG of 17% a year. 
One Year Chart
Last qtr Bright Horizons had just 11% revenue growth, which really isn’t great. But profits expanded 21%, and beat the 18% estimate so that was good. Also, profit estimates ticked up a bit — for the third straight qtr. 2017 est. have gone from $2.50 to $2.55, $2.61 and $2.64 the last 4 qtrs. That’s helping momentum, and this stock is slowly trending higher because of it. Estimates for the next 4 qtrs are 24%, 23%, 13% and 7% but with BFAM upping & beating I can envision the company beating these estimates. Note the Est. LTG is just 17% a year. That’s good but nor great, and a primary reason I haven’t invested yet.
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 the stock was 28x earnings last november and I’ve since moved it up to 31 times. But when I look at the Fair Value I’m still not excited about the stock. Meanwhile BFAM has since gone up from $80 to $85 since this table was done a month ago, smh.
Bottom Line
Bright Horizons Family Solutions has a good business model that helps it thrive when the economy is good as that means more hiring in the laborforce. BFAM lets the parents in the workplace focus on work instead of childcare, which is a win-win for parents and employers as well. I like this stock, but it’s not as fast of a grower as many of my other picks, thus I’m waiting patiently for a better buy point. BFAM is on my radar for the Growth Portfolio.
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