|
 Fund ownership of Bright Horizons Family Solutions Inc, the only
publicly traded daycare company in the United States, swelled 21
percent in the most recently reported quarter according to fund
tracker Morningstar. That is an unusually high number for a company
with a market cap of $2.7 billion.
The reason for the attraction? Bright Horizons, which operates more
than 880 childcare centers, offers a unique way to target
higher-income women as the job market improves, analysts say. Women
represent the primary source of income for 40 percent of U.S.
households with children, a record level, according to the Pew
Research Center. In 2011, these households earned nearly $80,000,
compared with a national median of $57,000 for all households with
children.
Among the well-known funds that have increased their positions in
Bright Horizons over the most recent quarter are the $5.5 billion
Baron Small Cap fund.
As a result, shares of the Watertown, Massachusetts, company are up
approximately 14.5 percent for the year through Sept. 17, nearly
double the return of the benchmark Standard & Poor's 500 index, and
trade at a pricy 37 times earnings.
Analysts are also high on the stock, with eight of the 13 analysts
tracked by Reuters recommending that clients buy shares, with the
remainder having a "hold" recommendation.
Bright Horizons derives approximately 60 percent of its revenue from
employer-sponsored daycare centers, which can range from a facility
tucked into a sprawling corporate headquarters at clients such as
Pfizer Inc to a standalone location at a suburban office park.
These centers help corporate clients such as Starbucks Corp and
financial services companies including Goldman Sachs and JP Morgan
attract and retain high-performing female employees, said Trace
Urdan, an analyst at Wells Fargo Securities LLC.
Bright Horizons did not respond to requests for comment.
In targeting major employers to sponsor a daycare center, Bright
Horizons' strategy is to blanket an industry, essentially getting
enough firms to provide on-site daycare benefits that all of its
competitors feel compelled to offer the same benefit in order to
attract talented employees. This has contributed to Bright Horizons'
slow but consistent growth rate, Urdan said.
Targeting upper-income parents also provides a cushion against the
expansion of universal pre-kindergarten services in places such as
New York, as many parents who opt for Bright Horizons would choose a
private option over a government-run service, he said.
[to top of second column] |
Yet the company's success at signing large corporations in the past
may mean that there is less "low-hanging fruit" for future growth,
noted Jeffrey Silber, an analyst at BMO Capital Markets. Bright
Horizons' rampant growth rate could also make it a challenge to
maintain quality, said Dan Dolev, an analyst at Jefferies who has a
"buy" rating on the stock.
The company's revenue grew 13.8 percent in its most recent fiscal
year, following two years in which revenue grew by approximately 10
percent annually. Analysts estimate that the company will post
revenue of $1.3 billion and earn $1.45 per share in its 2014 fiscal
year, according to Thomson Reuters data.
The growth rate could increase as the Affordable Care Act spurs more
consolidation in the $48 billion daycare industry as independent
business owners sell their centers rather than provide health
insurance to employees, said Dolev. The company has acquired an
average of 25 centers a year over the last decade, accounting for
about 20 percent of its annual revenue growth, he said.
Acquiring centers that provide care to children aged 2 and older
also helps increase gross margins, he said. While the cost for
caring for an infant consumes nearly 100 percent of tuition, the
cost to care for a preschooler falls to just 75 percent of tuition,
Dolev said.
"Employers are becoming more aware that having on-site childcare
results in fewer women missing work. The beauty of this company is
that it can continue to have controlled growth, as long as it
manages its reputation."
(Editing by Linda Stern and Matthew Lewis)
[© 2014 Thomson Reuters. All rights
reserved.] Copyright
2014 Reuters. All rights reserved. This material may not be
published, broadcast, rewritten or redistributed. |
