HCA Healthcare, Inc. HCA shares have gained 18.4% in the past three months, outperforming the hospital industry and the S&P 500 Index. Over this time frame, the industry and the S&P 500 Index have gained 16% and 2.2%, respectively.
Currently priced at $403.43, the stock is less than 1% below its 52-week high. This proximity underscores investor confidence and market optimism about this hospital company’s prospects. Moreover, the stock is trading above its 50-day and 200-day moving averages, signaling strong upward momentum.
HCA 3-Month Price Performance
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HCA’s Growth Prospects
Growing volumes is an important determinant for a healthcare facility operator like HCA Healthcare. The company is seeing elevated demand for its services driven by aging baby boomers, a higher number of people under insurance coverage through their employers or exchanges, COVID migration patterns, and increasing market share. The company saw a 6.4% year-over-year increase in admissions during the first half of 2024. Expected strong demand in the coming days poises the company’s top line well for growth.
The company is effectively meeting growing volumes by expanding capacity and enhancing efficiency, excelling on both fronts. Growing inpatient beds and outpatient facilities are expected to help the company meet the increasing volumes. Reduced length of stay is expected to positively impact the company’s operational efficiency. Contract labor is being managed well, as it came in at 4.8% of the total salaries, wages, and benefits, lower than 6.8% in the year-ago quarter.
Another aspect of margin improvement HCA is focusing on is artificial intelligence (AI). It can be used for staffing, scheduling, revenue cycle management etc. Although the company is still in the early stages of implementing AI, it expects the technology component of its capital expenditures to continue growing. The company expects to incur $5.1-$5.2 billion in capital expenditures in 2024 to expand existing operations. A strong footprint in its rapidly growing markets, such as Florida and Texas, bode well.
HCA’s strong prospects led it to revise its top-line guidance upward between $69.8 billion and $71.8 billion in 2024 from the previous guidance of $67.8 billion-$70.3 billion. It projects adjusted EBITDA in the range of $13.8-$14.3 billion for 2024, up from $12.9-$13.6 billion.
HCA Healthcare’s strong profitability enables it to consistently enhance shareholder value. In the last reported quarter, it returned $1.4 billion to shareholders through share buybacks and $170 million as dividends. The company had $4.2 billion remaining under its repurchase program as of June 30, 2024. It expects to repurchase shares worth $6 billion in 2024. With a dividend yield of 0.65%, HCA is ahead of the industry average of 0.51%.
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HCA’s Efficient Capital Utilization
The company’s return on invested capital (ROIC) has been increasing for quite some time. This reflects HCA’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 14.9%, higher than the industry’s average of 12.6%.
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Optimistic Analyst Sentiment for HCA
Reflecting the positive sentiment around HCA Healthcare, the Zacks Consensus Estimate for earnings per share has seen upward revisions. The consensus estimate for 2024 adjusted EPS for HCA is currently pegged at $22.46, indicating 18.2% year-over-year growth. The consensus mark for 2025 EPS suggests a further 10.9% jump year over year.
The company beat earnings estimates in three of the past four quarters, missed once, with an average surprise of 8.2%. The consensus estimate for 2024 and 2025 revenues suggests 8.9% and 5.3% year-over-year growth, respectively.
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HCA’s Valuation
From a valuation perspective, HCA appears marginally expensive. The company is trading at a forward 12-month price-to-earnings multiple of 16.68X, a bit higher than the industry average of 16.39X.
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In comparison, its peers like Tenet Healthcare Corporation THC and Universal Health Services, Inc. UHS are currently trading at forward 12-month price-to-earnings of 15.1X and 13.82X, respectively.
Wrapping Up
HCA Healthcare stock is expected to benefit from strong demand growth, driven by aging demographics, increased insurance coverage, and market expansion. Despite a marginally higher valuation compared to the industry, HCA's upward guidance and commitment to shareholder returns make it an attractive investment to add to your portfolio.The upward revisions in estimates suggest a promising outlook ahead, making this opportunity too good to pass up.
As such, HCA Healthcare currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
