Day-care giant’s shares should continue to soar as parents balance child care, work and budgets
By Laura Forman
A preschool teacher works with children on creating patterns at a Bright Horizons center in Lincoln, Neb. The company has a $9.3 billion market capitalization. Photo: Kristin Streff/Associated Press
Much like paying up for child care makes sense, it may be worth paying up for it in your portfolio.
Following competitor Care.com’s 48% year-to-date selloff, Bright Horizons Family Solutions BFAM 1.53%▲ is looking relatively expensive. Its shares are now trading at 2019 highs of 40 times price to forward earnings. In light of its rival’s recent issues, though, the day-care giant’s record of helping working parents justifies an even richer premium, given its vast growth potential.
The company is relatively unknown to those without children and even to investors. Despite its $9.3 billion market capitalization, only seven brokers tracked by FactSet cover the stock. By comparison, 26 cover Domino’s Pizza, which has similar market value.
One possible explanation could be that Bright Horizons doesn’t neatly fit into any one sector. Chief ExecutiveStephen Kramercalls it a care organization first, enabled by technology. And far more people order pizza than book child care.
That could be changing, though. It is becoming more common for women to outearn their spouses and some 65% of mothers with children under six were in the U.S. labor force last year, according to the Bureau of Labor Statistics, underscoring the acute need for quality child care.
In the U.S., interest around child-care policy has surged in the political sphere ahead of the 2020 election. Companies are paying attention too. Bright Horizons said it has seen a 70% increase in companies offering backup-care benefits over the last five years. That still made for just 9% of large U.S. employers in 2016, according to the Society for Human Resource Management, suggesting a large runway for growth.
Essential to the Bright Horizons’ business model are yearslong partnerships with employers such as Microsoft and Home Depot. Bright Horizons says that it is the largest provider of employer-sponsored child care in the U.S. and that up to 98% of its contracts are renewed in any given year.
While the majority of its operations are domestic, the company is also actively pursuing business overseas, including a new partnership recently unveiled in Germany. Mr. Kramer says his company is focused on areas where there is both government and employer-based support of child care.
Offering further validation to Bright Horizons model, which vets and employs the majority of its caregivers, Care.com has been growing its competing Care@Work platform, where it also vets and employs caregivers.
In March, a Wall Street Journal investigation showed Care.com provided limited vetting of its caregivers on its U.S. consumer platform, sometimes with tragic results. The company now has an activist investor who is calling for management to explore a sale, citing loss of consumer trust in the brand.
Bright Horizons, meanwhile, hasn’t missed a step. Management has projected more rapid sales and profit growth in the third quarter.
The juggle is real for working parents. That spells a long-term opportunity for this established day-care provider.
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