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Bright Horizons Has Entered A Margin Inflection Point, Says JPMorgan

Bright Horizons Has Entered A Margin Inflection Point, Says JPMorgan

JPMorgan has upgraded Bright Horizons Family Solutions Inc (NYSE: BFAM) to Overweight from Neutral, saying the company continues to sustain multiple growth drivers and is entering a period of above-average margin expansion.

"Coupled with the faster growing, higher margin Back-up care segment, we feel that BFAM has entered a margin inflection point with its new lease consortium centers," analyst Andrew Steinerman wrote in a note.

The analyst noted that Bright Horizons, which has about 60 percent share of the U.S. corporate child care, could achieve long-term organic growth via its market inherent pricing power and secular adoption for its corporate child care centers.

Steinerman continued that the margin inflection for the company should come in the form of new lease consortium centers. Bright Horizons currently has 52 new lease consortium centers, and the company's "margins are primed to benefit as the earlier classes reach maturity with fewer ramping classes in the mix."

In addition, the analyst said Bright Horizons' track record of about 6–8 percent organic revenue growth (post closings) is expected to continue as about 85 percent of new wins still come from Greenfield opportunities with more employers deciding to offer corporate child care.

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Over the intermediate term, the analyst expects Bright Horizons to achieve mid- to high-single-digit organic revenue growth, an additional 1–2 percent of acquired revenue growth, low-double-digit adj. EBITDA growth, and mid- to high-teens EPS growth.

"Consistent 3–4 percent annual tuition increases and dependable growth contributions from the faster growing Back-up/Ed Advisory segments present a sustained growth outlook," Steinerman added.

Steinerman raised his 2017 and 2018 EPS estimates to $2.61 and $3.00, respectively, from $2.55 and $2.88. For 2016, the analyst expects earnings of $2.19 a share.

The analyst also raised his price target by $6 to $76 on the shares, which, at time of writing, were up 4.35 percent on the day at $68.16.

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Latest Ratings for BFAM

Mar 2019CitigroupMaintainsNeutralNeutral
Mar 2019CitigroupMaintainsNeutralNeutral
Feb 2019BMO CapitalMaintainsMarket PerformMarket Perform

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