Why We're Putting This Return-to-Office Play into the Bullpen

*Rumblings of a larger return-to-office move are leading us to put Bright Family Solutions shares into the Bullpen

When we talk about the thematic strategies that we utilize in running the Portfolio, we focus on structural changes across several landscapes.

One of the structural changes that altered how we work coming out of the pandemic was the shift to work from home and, in some cases, work from anywhere. That sent shares of travel companies and online marketplaces for short-term rentals, like Airbnb ABNB and Expedia’s EXPE Vrbo. Over the last 12 to 18 months, we’ve seen companies mandate employees being in the office two to three days per week, but we may be on the cusp of employees coming back to the office more days than that.

In mid-September, Amazon AMZN CEO Andy Jassy made waves when he said effective in early January 2025 the return-to-office requirement for Amazon will expand to five days per week. JPMorgan Chase JPM Chairman and CEO Jamie Dimon has been one of the more vocal advocates of this return to office. While there has been some noted pushback online, a survey conducted by KPMG finds that Jassy and Dimon aren’t the only one who sees greater benefits associated with having folks back in the office. A recent KPMG survey of over 1,300 CEOs (400 of those being in the United States) in 11 key markets and industry sectors revealed that nearly 80% of CEOs believed that hybrid employees will return to full-time office work by 2027 — a rise of more than double from just 34% earlier this year.

Whether or not we ultimately get back to five days per week is uncertain, but we may see folks back in the office more than two to three days a week on average. That could be a headwind for businesses like Airbnb and Vrbo, which are already feeling ramped-up competitive pressure from Hilton HLT, Marriott MAR and other hotel companies.

Asking the question that any good detective will ask, “who benefits?,” we have to ask ourselves what companies would benefit from a greater return to office. There are those indirect beneficiaries as folks commute more days into the office, ones like Starbucks SBUX, McDonald’s MCD or even our own Dutch Bros BROS. But as we think about more time being spent in the office it means greater demand for services like childcare.

One such company is Bright Horizons Family Solutions BFAM, which operates through multi-year contracts with employers who offer early education and childcare, backup care, educational advisory and other services as part of their employee benefits packages. Bright has roughly 1,450 client relationships with employers across a diverse array of industries, including more than 220 of the Fortune 500 companies. Its largest client contributed about 1% of revenue in 2023 and its largest 10 clients represented approximately 8% of revenue. During its recent earnings call, Bright management discussed new clients, including Honeywell HON, the Georgia Institute of Technology, GlobalFoundries GFS and International Paper IP.

When it comes to BFAM shares and the Portfolio, we’ll want to see if the return-to-office push has legs. We’ve seen companies try to bring employees back into the office and they’ve met stiff resistance. Coming off the KPMG findings and the attention that Jassy’s comments received, we’ll be looking for signs other companies are leaning toward a greater return to office policy mandate during September quarter earnings conference calls. We’re already hearing of companies that are trying to entice employees who return to the office four to five days a week with a dedicated office instead of desk hoteling.

Our thinking is the more companies that get on board, the more likely it is to happen and that’s the potential tailwind to capture with BFAM shares. For that reason, we’re adding BFAM shares to the Bullpen. Between now and the ramp of those earnings calls, we’ll be digging deeper into Bright’s business, which will allow us to look at competitors but also establish potential entry and price target levels for BFAM shares.

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At the time of publication, TheStreet Pro Portfolio was long AMZN and BROS.