Bright Horizons (BFAM)

BFAM is a company that falls into the ‘strong get stronger’ bucket. We would argue that it is a potential core holding.

• Balance sheet risk is minimal, even in a catastrophic 2020, we estimate that BFAM will make EPS of at least $1.50 due to 70% variable costs.

• Pricing power is strong, increasing 3-4% even in 2008 and 2009. This combined with cross selling of higher margin services gives the business the ability to revert to 10-15% EPS growth rapidly as the economy normalises.

• In a highly fragmented market comprised largely small operators, after the recession shock we believe larger industry participants like BFAM with size and capital resources will further increase market share via M&A. 

Potential Upside: $150 (+33%) – below the recent trading range as we are more conservative on multiple

Downside: $89 (-20%) – based on 2021 EPS of $3.29 which we feel is suitably conservative

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