Bright Horizons Family Solutions Inc. (BFAM): A Bull Case Theory

We came across a bullish thesis on Bright Horizons Family Solutions Inc. (BFAM) on Value Investing Subreddit Page by raytoei. In this article, we will summarize the bulls’ thesis on BFAM. Bright Horizons Family Solutions Inc. (BFAM)’s share was trading at $126.82 as of May 5^th. BFAM’s trailing and forward P/E were 52.84 and 31.06 respectively according to Yahoo Finance.

BFAM operates employer-sponsored childcare centers, where companies build and own the facilities, allowing BFAM to keep its capital expenditures low, typically around 3% of sales. This structure, along with multi-year contracts, results in a high retention rate of around 95%, providing the company with a strong economic moat. Although the business faced challenges during the pandemic due to remote work, it remained profitable and is now experiencing growth as employees return to their offices. The company’s EBITDA-to-debt ratio is currently 4.1x, above its target of 2.5 to 3x, but given its high cash generation, this level of debt is manageable. Over the past decade, BFAM has maintained a solid free cash flow to net income ratio of 1.5, and its net debt is now 1.8x EBITDA, reflecting a stable financial position.

Historically, the company achieved impressive EPS growth, with a 19.5% annual increase from 2015 to 2019. After the pandemic’s disruptions, its normalized EPS growth from 2022 to 2024 stands at 15.5%, with analysts projecting 16.1% growth over the next three years. BFAM has also reaffirmed its guidance for adjusted EPS growth of 15% to 20% for 2025. With these growth expectations in mind, the company’s value is estimated at $149 based on a 15% growth rate, while Morningstar’s estimate places it at $125. At the current price of around $128, BFAM appears fairly valued.

However, the stock’s fair valuation does not necessarily make it an immediate buy. A margin of safety analysis suggests a potential buy price of $85 in a scenario similar to 2020 or $112 with more conservative growth. The primary risk remains a potential recession, which could reduce demand for childcare services. Investors are advised to keep BFAM on their watchlist and wait for a more attractive entry point.

Bright Horizons Family Solutions Inc. (BFAM) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 30 hedge fund portfolios held BFAM at the end of the fourth quarter which was 33 in the previous quarter. While we acknowledge the risk and potential of BFAM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BFAM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.