KinderCare Learning (KLC) and Bright Horizons Family Solutions (BFAM) are facing structural affordability and availability constraints that prevent underlying demand from translating into enrollment, Morgan Stanley said in a note Wednesday.

Nationwide enrollment for child care among 3- and 4-year-olds from 2020 to 2024 was about 3% lower than pre-COVID levels despite indicators showing child care demand is increasing, according to the note.

The investment firm said cost is the main constraint on enrollment growth, with average annual center-based tuition ranging from about $13,000 for a 4-year-old to $15,000 for an infant. Household consumption expenses for child care has outpaced wage growth by around 94 basis points since the start of 2025, pointing to increasing affordability pressure, according to the note.

The firm also said there is an estimated 30% child care supply/demand gap in the US, with slots often not available or priced at levels families can afford.

Affordability and availability challenges are structurally unlikely to change "without meaningful government intervention," the firm said.

Morgan Stanley maintained an underweight rating on both stocks and lowered the price targets to $2 from $2.50 for KinderCare Learning, and $66 from $68 for Bright Horizons.

Shares of KinderCare were down 6.3% while Bright Horizons stock was 1.3% higher in Wednesday trading.

Price: 2.18, Change: -0.15, Percent Change: -6.25