$43.89
$140.55
bear $43.89
base $86.46
bull $140.55
margin of safety $55.00
market price* $92.03
HealthEquity is a non-bank custodian of health savings accounts (HSAs) and an administrator of other employer-sponsored consumer benefits such as FSAs and HRAs. At January 31, 2026, the end of fiscal 2026, it administered 10.6 million HSAs and 17.8 million total accounts; by July 31, 2026 HSAs had reached 10.7 million, up 8% in a year. It earns money three ways: service fees from employers and members ($485 million in fiscal 2026), interchange on its payment cards ($192 million), and custodial revenue ($637 million), which is the interest it earns by placing members' HSA cash with banks and insurance companies, typically on three-to-five-year contracts. Custodial revenue is nearly half of sales and by far the most profitable stream (direct costs of $44 million against $637 million of revenue), so interest rates are the biggest single driver of value. What the business earns. We measure owner earnings as operating cash flow with working-capital swings removed, less stock compensation (a real cost) and the software and equipment spending needed to keep the platform running. On that basis HealthEquity earned $369 million in fiscal 2026 ($4.22 a share), up from $209 million ($2.35) in fiscal 2025 and $164 million ($1.89) in fiscal 2024. Fiscal 2021 to 2023, after the August 2019 WageWorks acquisition, earned far less ($0.20 to $0.98 a share), largely because member cash was locked into contracts signed after the pandemic rate cuts and yielded only 1.75% in fiscal 2022 and 1.90% in fiscal 2023; those years no longer describe the business. We start from fiscal 2026 with two adjustments. First, we remove about $53 million of cash-tax savings from the July 2025 federal tax law's immediate expensing of research costs: the company states its tax expense is not expected to change, and the lower tax payments are a timing benefit expected to continue into fiscal 2027. Second, we raise stock compensation to its current pace of about $83 million a year (first half of fiscal 2027, doubled) from $73 million. That leaves about $306 million, or roughly $3.62 a share on the current 84.6 million diluted shares. Fiscal 2025 is not a better guide: it carried about $40 million of merger integration costs, including a one-time $30 million lease-termination settlement, a lower yield, and a portfolio still being absorbed (the BenefitWallet purchase of about 616,000 HSAs and $2.7 billion of assets for $452 million). Stock compensation in fiscal 2026 was temporarily low after the former chief executive retired, and the company expects it to normalize, which is why we raised it. The first half of fiscal 2027 supports the higher level: operating cash flow was $234 million versus $201 million a year earlier, and second-quarter custodial revenue rose 10%. Accounting judgements. Purchases of HSA portfolios and businesses are treated as investments, not running costs, and amortization of acquired intangible assets (more than $90 million a year) is added back. Acquired accounts do leave over time, so instead of treating them as permanent we tie growth to the company's net growth in HSA cash (3% in fiscal 2026), which already absorbs those losses, and we credit no future acquisitions. The interest-rate structure. At January 31, 2026, $17.3 billion of HSA cash earned an average 3.6%. Of that, $4.5 billion earning only 1.9% reprices during fiscal 2027, while $12.8 billion is contracted at roughly 3.6% to 4.4% with repricing spread over fiscal 2028 and later. The average yield rose from 3.11% in fiscal 2025 to 3.53% in fiscal 2026 and about 3.9% by July 31, 2026, helped by more member cash moving into the higher-paying Enhanced Rates offering (49% to 58% of HSA cash during fiscal 2026). The company partly hedges future placements with Treasury bond forwards. Base case, about $86 a share. The low-yield $4.5 billion reprices to about 3.6%, the portfolio's own average and below the 3.9% it already earns, adding roughly $54 million a year after costs and tax from fiscal 2028 (half of that in fiscal 2027). Contracted placements keep their yields and later renewals happen at roughly today's rates. Underlying earnings grow 3% a year, in line with fiscal 2026 growth in HSA cash and below account growth (HSAs up 7%, with 1.04 million new HSAs from sales), with service revenue roughly flat because fees per account are falling, as the company disclosed. Owner earnings reach about $4.04 a share in the coming year, a rise of about 12% against roughly 49% like-for-like growth last year, and about $5.49 by year ten. After year ten we hold earnings flat with no growth: HSAs exist under federal tax law, members keep contributing and balances accumulate, so the earning power persists, but we assume no expansion beyond it. Bear case, about $44 a share. Interest rates fall: the $4.5 billion reprices at only 2.6%, and as the remaining contracts renew between fiscal 2028 and 2032 the portfolio yield slides from about 3.9% to 3.0%, removing about $110 million a year after tax. Continued fee pressure holds underlying growth to 1%, and after year ten earnings shrink 2% a year. The company carries about $935 million of debt ($600 million of 4.50% notes due 2029 plus a revolving credit line at 5.08%); even in this case the business is worth about four times that debt. A consolidated class action over a 2024 data breach at a business partner's account is pending in federal court in Utah. Bull case, about $141 a share. The $4.5 billion reprices at 4.0%, the continuing shift into Enhanced Rates lifts the yield another 0.2 percentage points over two years, and underlying earnings grow 5% a year, below recent HSA account growth of 7% to 8% and interchange growth of 9%. After year ten earnings grow 2% a year as member balances keep accumulating. Left out of every case: the July 2025 federal law that widened HSA eligibility to Bronze and Catastrophic health plans (uptake is not yet proven), further portfolio acquisitions, further cost savings from technology (service costs fell 7% in fiscal 2026), and share buybacks ($299 million in fiscal 2026 and $231 million in the first half of fiscal 2027), which are paid for out of the owner earnings already counted. All cases are discounted at 6%. The margin-of-safety price is $55, about 35% below the base case and 25% above the bear case, because nearly half of revenue depends on interest rates the company does not control. What would make this wrong: rates falling further or faster than the bear case assumes, a rule change forcing custodians to pass more interest to members, loss of banking or insurance partners, or members moving cash into investments much faster than today (HSA investments grew 26% in fiscal 2026 against 3% for HSA cash).