HCA Checks Out As Healthy Investment

6/22/2015


  Recent Price
$84
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
16
  Shares (millions)
435
  Long-Term Debt As % Of Capital
129%
  52-Week Price Range
$84.58 - $53.61

HCA Holdings ($84; HCA) operates roughly 280 hospitals and free-standing clinics in 20 states and London, England. The improving economy has boosted demand for preventative care and elective procedures, a trend that helps explain why the health-care sector has outstripped all other sectors.

Shares of HCA have risen 15% this year, compared to the average gain of 12% for health-care facility stocks in the S&P 1500 Index and a 2% gain for the broad index. The stock trades at 16 times trailing earnings, a 29% premium to its three-year average but 21% below its peer-group median.

The consensus expects per-share earnings to slip 4% in the June quarter but rise 11% for the full year. Analyst estimates are ticking higher, as reflected by the stock's Quadrix Earnings Estimates score of 96. HCA is a Buy and a Long-Term Buy.

Business breakdown

HCA draws 54% of its revenue from U.S. managed-care providers, 32% from Medicare, 10% from Medicaid, and 4% from other sources in England. Over the past decade, HCA has reduced its hospital count 8% to 168 while adding more free-standing clinics, up 35% to 113. As a result, the number of licensed beds has increased 5% since 2004, though the composition of services performed has shifted. The annual number of inpatient surgeries has declined 4% over the past decade, with outpatient surgeries up 7% and emergency-room visits surging 43%.

HCA enjoys rising volumes from market-share gains and improving economic trends in key markets. Admissions have increased in each of the past four years, and HCA's occupancy rate reached 55% in 2014, its highest level in at least 25 years. Occupancy levels now exceed 70% for operating beds and 85% for ER beds.

To meet rising demand, HCA in May increased its capital-spending budget by $500 million to $7.7 billion over the next three years, versus a total of $5.98 billion spent during the last three years. HCA plans to increase bed capacity in existing facilities while also building new hospitals and outpatient clinics. Also in May, HCA, which has lowered its share count by 6% over the past two years, launched a new $1 billion share-repurchase plan.

ACA uncertainty

Since the Affordable Care Act took effect, the share of Americans without health insurance has dropped to 12% from 18%. This matters to HCA and other hospitals, which offer discounts and charity care to uninsured patients. HCA's same-facility admissions rose 2% last year, yet admissions of uninsured patients fell 9%, most likely because many previously uninsured patients obtained coverage.

Nearly half of HCA's hospitals are located in Florida and Texas, two of the 34 states subject to the upcoming Supreme Court decision on whether states that use federal health exchanges can keep providing subsidies. Should the Supreme Court invalidate subsidies, health coverage could become unaffordable for 8 million people, according to one study. A ruling is expected in late June or early July.

An annual report for HCA Holdings Inc. can be obtained at One Park Plaza, Nashville, TN 37203; (615) 344-9551; www.hcahealthcare.com.

HCA HOLDINGS
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Mar '15
1.35
vs.
0.84
10%
78.44
-
66.63
17 - 14
Dec '14
1.33
vs.
0.92
9%
75.82
-
62.50
18 - 15
Sep '14
1.18
vs.
0.79
9%
73.94
-
53.61
19 - 14
Jun '14
1.37
vs.
0.91
9%
58.55
-
47.78
17 - 14
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Est.
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2014
36.92
4.70
0.00
75.82
-
46.02
16 - 10
2013
34.18
3.41
0.00
49.52
-
30.65
15 - 9
2012
33.01
3.71
0.00
34.32
-
20.33
9 - 5
2011
29.68
2.85
0.00
35.37
-
17.03
12 - 6
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
96
97
77
64
40
96
84

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.


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