Bright Horizons (BFAM)

Child care and education company Bright Horizons (NYSE:BFAM) reported revenue ahead of Wall Streets expectations in Q3 CY2025, with sales up 11.6% year on year to $802.8 million. Its non-GAAP profit of $1.57 per share was 18.9% above analysts’ consensus estimates.

Company Overview

Founded in 1986, Bright Horizons (NYSE:BFAM) is a global provider of child care, early education, and workforce support solutions.

A whole industry has emerged to address the problem of rising education costs, offering consumers alternatives to traditional education paths such as four-year colleges. These alternative paths, which may include online courses or flexible schedules, make education more accessible to those with work or child-rearing obligations. However, some have run into issues around the value of the degrees and certifications they provide and whether customers are getting a good deal. Those who don’t prove their value could struggle to retain students, or even worse, invite the heavy hand of regulation.

Bright Horizons's primary competitors include K12 Inc. (NYSE: LRN), G8 Education (ASX:GEM), Grand Canyon Education (NASDAQ: LOPE), and private companies KinderCare Education, Learning Care Group, Goddard Systems, and Primrose Schools.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Bright Horizons grew its sales at a 11.6% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the consumer discretionary sector, which enjoys a number of secular tailwinds.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Bright Horizons’s annualized revenue growth of 11% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.

This quarter, Bright Horizons reported year-on-year revenue growth of 11.6%, and its $802.8 million of revenue exceeded Wall Street’s estimates by 2.9%.

Looking ahead, sell-side analysts expect revenue to grow 6.4% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and indicates its products and services will see some demand headwinds.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Bright Horizons’s operating margin has been trending up over the last 12 months and averaged 9.9% over the last two years. The company’s higher efficiency is a breath of fresh air, but its suboptimal cost structure means it still sports mediocre profitability for a consumer discretionary business.

In Q3, Bright Horizons generated an operating margin profit margin of 15.1%, up 2.6 percentage points year on year. This increase was a welcome development and shows it was more efficient.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Bright Horizons’s EPS grew at a solid 14.7% compounded annual growth rate over the last five years, higher than its 11.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q3, Bright Horizons reported adjusted EPS of $1.57, up from $1.11 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Bright Horizons’s full-year EPS of $4.39 to grow 7.3%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Bright Horizons has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 8.2%, subpar for a consumer discretionary business.

Bright Horizons burned through $42.45 million of cash in Q3, equivalent to a negative 5.3% margin. The company’s cash burn was similar to its $32.18 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

Over the next year, analysts predict Bright Horizons’s cash conversion will slightly improve. Their consensus estimates imply its free cash flow margin of 8.1% for the last 12 months will increase to 9.6%, giving it more flexibility for investments, share buybacks, and dividends.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Bright Horizons historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.4%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, Bright Horizons’s ROIC increased by 1.9 percentage points annually over the last few years. This is a good sign, and we hope the company can continue improving.

Bright Horizons reported $116.6 million of cash and $1.75 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $474.7 million of EBITDA over the last 12 months, we view Bright Horizons’s 3.4× net-debt-to-EBITDA ratio as safe. We also see its $44.57 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Bright Horizons beat analysts’ EPS expectations this quarter. We were also glad its full-year EPS guidance exceeded Wall Street’s estimates. Zooming out, we think this was a solid print. The stock traded up 9.2% to $100.90 immediately following the results.

Updated: December 4, 2025 at 9:52 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Bright Horizons.

Bright Horizons doesn’t pass our quality test. To kick things off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. On top of that, Bright Horizons’s Forecasted free cash flow margin suggests the company will have more capital to invest or return to shareholders next year, and its organic sales performance has disappointed.

Bright Horizons’s P/E ratio based on the next 12 months is 21.1x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $129.44 on the company (compared to the current share price of $104).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.