Benefitfocus Stock: Strong Tailwinds Could Propel BNFT Stock to a Breakout

Benefitfocus Stock
iStock.com/Andranik Hakobyan

Benefitfocus: A Trump Stock

President Donald Trump failed to repeal and replace Obamacare, but we know that the healthcare sector needs to be fine-tuned for improved efficiency and cost management. There are numerous healthcare technology stocks that have sprung up to fill this void, including Benefitfocus Inc (NASDAQ:BNFT).

Benefitfocus is intriguing in that the company offers a cloud-based platform that allows consumers to shop for and enroll in healthcare plans and allows companies to manage their own healthcare plans.

The purpose is to create a more flexible healthcare system for both users and companies.

For investors, Benefitfocus stock has been delivering steady revenue growth while moving toward becoming profitable.

BNFT stock traded at a 52-week high of $39.30 on July 24, prior to coming back a bit. Benefitfocus stock is up 31% this year and is easily outperforming the indices. However, it is down 3.2% over the past year, so there’s still ample room for gains.

 

Chart courtesy of StockCharts.com

BNFT stock has rallied from the November 2016 low, characterized by an ascending triangle and breakout.

The next key resistance marker is the $40.00 level.

My Bull Case for BNFT Stock

Benefitfocus has recorded higher sequential revenue in five straight years from $104.8 million in 2013 to $256.7 million in 2017, translating to a strong compound annual growth rate (CAGR) of 25.1%.

Year Revenue (Millions) Growth
2013 $104.8
2014 $137.4 31.2%
2015 $185.1 34.7%
2016 $233.3 26.0%
2017 $256.7 10.0%

There is some concern for BNFT stock though, since the company’s revenue growth rate fell to 10% in 2017—the lowest in four years and below the CAGR.

The revenue adjustment looks like it will continue for Benefitfocus, with revenues estimated to contract by 0.6% to $255.3 million in 2018 but rally 11.6% to $285.0 million in 2019. (Source: “Benefitfocus, Inc. (BNFT),” Yahoo! Finance, last accessed July 27, 2018.)

Benefitfocus is doing a good job in managing its direct costs, with gross income growing at a higher rate than revenue from 2015 to 2017.

Year Gross Income (Millions) Growth
2013 $42.3
2014 $50.0 18.0%
2015 $82.3 64.8%
2016 $112.7 36.9%
2017 $132.5 17.6%

Benefitfocus also increased its earnings before interest, taxes, depreciation, and amortization (EBITDA) at a faster rate than revenues in 2016 and 2017, turning positive in 2017. The EBITDA should continue to increase as BNFT stock moves toward profitability.

Year EBITDA (Millions) Growth
2013 -$20.1
2014 $49.4 -146.3%
2015 -$42.6 13.8%
2016 -$19.1 55.2%
2017 $2.39 112.5%

As I said, Benefitfocus has yet to turn a generally accepted accounting principles (GAAP) or adjusted profit, but that appears to be coming. The GAAP loss has narrowed in four straight years.

Year GAAP Diluted EPS (Diluted)
2013 -$2.99
2014 -$2.51
2015 -$2.19
2016 -$1.35
2017 -$0.83

For full-year 2018, Benefitfocus is expected to report an adjusted loss of $0.66 per diluted share, followed by a decline to as low as $0.08 per diluted share in 2019.

The key free cash flow (FCF) is negative, but it improved in 2016 and 2017. We could see FCF turn positive in 2019 as BNFT stock moves toward profitability.

Year Free Cash Flow (Millions)
2013 -$7.9
2014 -$28.7
2015 -$46.3
2016 -$35.5
2017 -$14.2

Analyst Take

Benefitfocus should benefit from the expected changes in the U.S. healthcare segment as the government and companies try to get a grip on costs.

BNFT stock could also benefit from a short position of 3.5 million shares or 47% of the float. If Benefitfocus stock breaks higher, I would expect some aggressive short covering, which will help drive the stock price higher.