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HCA Healthcare Stock Trades at Premium: Time to Buy or Hold?
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U.S. hospital operator HCA Healthcare, Inc. (HCA - Free Report) is currently considered relatively overvalued, trading at a forward 12-month price/earnings (P/E) of 12.28X. This figure surpasses the broader medical hospital industry average of 11.91X and is higher than other hospital companies such as Universal Health Services, Inc. (UHS - Free Report) and Tenet Healthcare Corporation (THC - Free Report) , which are trading at 10.24X and 11.45X P/E, respectively. Does this premium valuation reflect the market’s confidence in HCA Healthcare’s prospects?
Image Source: Zacks Investment Research
Such a premium necessitates careful evaluation to determine whether it is supported by the company's fundamentals, growth potential and prevailing market conditions. A more detailed analysis is essential to reach a conclusion.
HCA’s Financial Situation
HCA Healthcare ended the third quarter with cash and cash equivalents of just $2.9 billion, while its long-term debt (excluding issuance costs and discounts) rose to $38.3 billion, up from $37.2 billion at the end of 2023. The company’s long-term debt-to-capital ratio stands at 97.99%, significantly higher than the industry average of 85.33%.
Despite this, HCA’s strong cash-generating abilities are expected to improve its financial position. Over the trailing 12 months, the company generated $5.9 billion in free cash flow, a substantial 25.5% year-over-year increase. This follows 13.6% growth in free cash flow in the prior year. This robust cash flow positions HCA to pursue future acquisitions for inorganic growth and return value to shareholders.
In 2023, the company repurchased $3.8 billion worth of shares, followed by $4.3 billion in share buybacks during the first nine months of 2024. Additionally, it paid $525 million in dividends during the same period. As of Sept. 30, 2024, HCA had approximately $2.4 billion remaining under its share buyback authorization.
Tailwinds for HCA Healthcare
HCA Healthcare is benefiting from rising admissions, a comprehensive suite of healthcare services and a vast treatment network across the U.S. In the third quarter, same-facility equivalent admissions grew 4.5% year over year, while revenue per equivalent admission increased 2.5%.
The resumption of deferred elective procedures has driven higher patient volumes at HCA’s surgery centers, boosting occupancy levels. To meet growing demand, the company continues to invest in enhancing its clinical systems, digital capabilities and care models, ensuring improved patient outcomes and operational efficiency.
HCA Earnings Estimates & Surprise History
The Zacks Consensus Estimate for HCA Healthcare’s 2024 earnings is pegged at $21.90 per share, indicating 15.2% year-over-year growth. The same for 2025 signals a further 13.1% increase. The estimates witnessed no movement in the past week. Also, the consensus mark for HCA’s 2024 and 2025 revenues suggests 8.4% and 5.9% year-over-year growth, respectively.
The company beat earnings estimates in each of the past four quarters with an average surprise of more than 9%.
HCA Healthcare shares have risen 12.1% so far this year, outperforming the industry average of 10.4%. However, its growth has lagged behind peers such as Universal Health Services and Tenet Healthcare, as well as the broader S&P 500 Index.
While HCA delivered strong gains through the end of the third quarter, its stock has faced some decline since then, mirroring a broader dip among hospital operators, driven by various industry challenges.
HCA YTD Stock Performance Vs. UHS, THC & S&P 500
Image Source: Zacks Investment Research
The hospital industry, including HCA Healthcare, is grappling with headwinds. Analysts predict that the new administration's focus on reducing government spending and implementing policy changes could pressure hospital profits in the near term. Additionally, concerns about decreased hospital funding and the expiration of insurance subsidies are contributing to industry-wide uncertainty.
Despite HCA's cost-curbing efforts, its total operating expenses have consistently risen. In 2022, 2023, and the first nine months of 2024, operating expenses increased by 4.3%, 8.4%, and 9.4% year over year, respectively. With rising occupancy levels, resource utilization is expected to grow, further driving supply costs. Additionally, salaries and benefits are likely to climb as HCA meets the increasing demand for its services.
What Should Investors Do With HCA Stock?
While the market’s reaction to the political environment is understandable, it may be overly cautious. HCA Healthcare’s strong cash generation, rising admissions, and growing demand for its services position it well for navigating these challenges. Current shareholders should stay put and benefit from its expanding operations and shareholder-friendly moves. However, new investors should wait for a better entry point and keep an eye on its debt burden and rising expenses.
Image: Bigstock
HCA Healthcare Stock Trades at Premium: Time to Buy or Hold?
U.S. hospital operator HCA Healthcare, Inc. (HCA - Free Report) is currently considered relatively overvalued, trading at a forward 12-month price/earnings (P/E) of 12.28X. This figure surpasses the broader medical hospital industry average of 11.91X and is higher than other hospital companies such as Universal Health Services, Inc. (UHS - Free Report) and Tenet Healthcare Corporation (THC - Free Report) , which are trading at 10.24X and 11.45X P/E, respectively. Does this premium valuation reflect the market’s confidence in HCA Healthcare’s prospects?
Such a premium necessitates careful evaluation to determine whether it is supported by the company's fundamentals, growth potential and prevailing market conditions. A more detailed analysis is essential to reach a conclusion.
HCA’s Financial Situation
HCA Healthcare ended the third quarter with cash and cash equivalents of just $2.9 billion, while its long-term debt (excluding issuance costs and discounts) rose to $38.3 billion, up from $37.2 billion at the end of 2023. The company’s long-term debt-to-capital ratio stands at 97.99%, significantly higher than the industry average of 85.33%.
Despite this, HCA’s strong cash-generating abilities are expected to improve its financial position. Over the trailing 12 months, the company generated $5.9 billion in free cash flow, a substantial 25.5% year-over-year increase. This follows 13.6% growth in free cash flow in the prior year. This robust cash flow positions HCA to pursue future acquisitions for inorganic growth and return value to shareholders.
In 2023, the company repurchased $3.8 billion worth of shares, followed by $4.3 billion in share buybacks during the first nine months of 2024. Additionally, it paid $525 million in dividends during the same period. As of Sept. 30, 2024, HCA had approximately $2.4 billion remaining under its share buyback authorization.
Tailwinds for HCA Healthcare
HCA Healthcare is benefiting from rising admissions, a comprehensive suite of healthcare services and a vast treatment network across the U.S. In the third quarter, same-facility equivalent admissions grew 4.5% year over year, while revenue per equivalent admission increased 2.5%.
The resumption of deferred elective procedures has driven higher patient volumes at HCA’s surgery centers, boosting occupancy levels. To meet growing demand, the company continues to invest in enhancing its clinical systems, digital capabilities and care models, ensuring improved patient outcomes and operational efficiency.
HCA Earnings Estimates & Surprise History
The Zacks Consensus Estimate for HCA Healthcare’s 2024 earnings is pegged at $21.90 per share, indicating 15.2% year-over-year growth. The same for 2025 signals a further 13.1% increase. The estimates witnessed no movement in the past week. Also, the consensus mark for HCA’s 2024 and 2025 revenues suggests 8.4% and 5.9% year-over-year growth, respectively.
The company beat earnings estimates in each of the past four quarters with an average surprise of more than 9%.
HCA Healthcare, Inc. Stock Price and EPS Surprise
HCA Healthcare, Inc. price-eps-surprise | HCA Healthcare, Inc. Quote
HCA Stock Price Performance
HCA Healthcare shares have risen 12.1% so far this year, outperforming the industry average of 10.4%. However, its growth has lagged behind peers such as Universal Health Services and Tenet Healthcare, as well as the broader S&P 500 Index.
While HCA delivered strong gains through the end of the third quarter, its stock has faced some decline since then, mirroring a broader dip among hospital operators, driven by various industry challenges.
HCA YTD Stock Performance Vs. UHS, THC & S&P 500
The hospital industry, including HCA Healthcare, is grappling with headwinds. Analysts predict that the new administration's focus on reducing government spending and implementing policy changes could pressure hospital profits in the near term. Additionally, concerns about decreased hospital funding and the expiration of insurance subsidies are contributing to industry-wide uncertainty.
Despite HCA's cost-curbing efforts, its total operating expenses have consistently risen. In 2022, 2023, and the first nine months of 2024, operating expenses increased by 4.3%, 8.4%, and 9.4% year over year, respectively. With rising occupancy levels, resource utilization is expected to grow, further driving supply costs. Additionally, salaries and benefits are likely to climb as HCA meets the increasing demand for its services.
What Should Investors Do With HCA Stock?
While the market’s reaction to the political environment is understandable, it may be overly cautious. HCA Healthcare’s strong cash generation, rising admissions, and growing demand for its services position it well for navigating these challenges. Current shareholders should stay put and benefit from its expanding operations and shareholder-friendly moves. However, new investors should wait for a better entry point and keep an eye on its debt burden and rising expenses.
HCA Healthcare currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.