WageWorks Shares Could Rise 16% Over Next Year

Channel checks indicate strong growth for Wageworks Inc WAGE over the next couple of years from multiple sources, Chardan Capital Markets’ Steven Wardell said in a report. He initiated coverage on the company with a Buy rating and a price target of $86.

WageWorks’ growth over the next two years would be driven by employers shifting healthcare costs onto employees and employees turning to the company’s products for tax advantages in paying for healthcare, Wardell mentioned. He added that there was 16 percent upside for the stock in the next 12 months.

Strong Demand Would Boost Growth

WageWorks, a leading provider of Consumer Directed Benefit (CDB) services to employers, has an addressable market of $6 billion. The company already has a market share of about 10 percent. The market is consolidating and WageWorks “is a proven consolidator in the sector, providing an inorganic-growth option for the company,” Wardell commented.

The analyst expects demand for CDBs to be robust in 2017, resulting in revenue growth of 32 percent for WageWorks. He added that the stock currently trades at a premium to its peers, but should be able to maintain its premium over time “because of the company's market leadership position and high 30 percent forward Adj. EBITDA margin.”