Six analysts have increased their EPS estimates for this childcare company in the past 30 days.
Bright Horizons Family Solutions Inc. (BFAM)
From Ian Wyatt’s Million Dollar Portfolio
The U.S. imports $535 billion worth of goods and services from China. President Trump placed 25% tariffs on $200 billion worth of those imports. Last week, Trump warned that the rest could be subject to tariffs, after negotiations between the two countries seemed to reach an impasse.
The Chinese didn’t take the news lying down. China’s State Council Customs Tariff Commission said Monday that it was imposing tariffs of up to 25% on $60 billion worth of U.S. goods starting in June. China’s President Xi Jingping has taken a hard line against capitulation in recent public statements and the Chinese government has said it isn’t in any rush to resume negotiations. China is a major supplier of rare-earth elements that are used to make everything from batteries to electronics. It is a major holder of U.S. debt (both public and private) and is a major investor in many U.S. businesses.
The S&P 500 dropped roughly 5% from peak-to-trough when news broke that the trade dispute was heating up again. The index has made up about half the lost ground, but it’s a safe bet that we’ll see more volatility until there’s some sort of resolution.
The good news is that, despite this dustup, the U.S. economy is still strong.
The U.S. unemployment rate is a low 3.8%, wages are rising, inflation is low and housing costs haven’t been rising significantly. If it weren’t for the U.S.-China trade war, you could call this a Goldilocks economy.
The good news is that there are stocks that will avoid the trade war gyrations.
A great example is Bright Horizons Family Solutions Inc. (BFAM). Bright Horizons provides childcare and early education, back-up care and educational advisory services. This economy has created a sweet spot for Bright Horizons.
One of its core businesses is contracting with companies to provide childcare onsite or near-site for their employees. As unemployment has dropped and the labor market has tightened, more parents need childcare and employers are looking to differentiate themselves. Free or discounted childcare is a great way to do that. That’s driven impressive growth at the company.
In the first quarter, revenue rose 8% year-over-year to $502 million. Revenue growth, combined with improving margins, pushed Bright Horizon’s net income up 13% to $42 million, while first-quarter earnings per share rose 15% to $0.71.
The other great thing about Bright Horizons is that it has zero exposure to China. The majority of its centers are located in the U.S., but it also has operations in the United Kingdom, the Netherlands, Canada and India. And, barring an economic collapse, it has zero effective exposure to the trade war.
As long as the U.S. economy remains strong, you can look for the gap between Bright Horizons and the broader index to continue widening.
Recommended Action: Buy Bright Horizons Family Solutions at market price.
Ian Wyatt, Ian Wyatt’s Million Dollar Portfolio, www.wyattresearch.com, May 17, 2019