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The uptrend in HCA Holdings Inc. (HCA - Free Report) explains its attractiveness in an uncertainty-ridden industry.
Year to date, the share of HCA Holdings have gained 9.3% as against a loss of 10% incurred by the Zacks categorized Medical-Hospital industry. Other players in the same industry such as Life Point Health Inc. , Universal Health Services, Inc. (UHS - Free Report) , Tenet Healthcare Corporation (THC - Free Report) , and Community Health (CYH - Free Report) recorded a loss of 21.7%, 11%, 50.5% and 78.4%, respectively, over the same time frame.
When the entire sector has underperformed, let us examine what helped HCA to stand out in the industry which has been reeling under the uncertainty over the changes that will be brought in by the Trump administration.
First and foremost HCA Holdings scale and size works in its favor, giving it a competitive advantage. It is much more than a hospital company. It is a fully integrated provider system that stretches across 42 markets in the U.S. and the U.K., with unique insights of the health care space. No market comprised more than 7% of revenues or 10% of adjusted EBITDA in 2015. It is also well diversified in its service lines, with no particular area representing more than 13% of its 2015 revenues. The company’s scale and diversified business mix provide it a competitive advantage in negotiating contracts and managing reimbursement uncertainty. Though HCA Holdings is likely to experience increased margin pressure due to slower reimbursement growth, it is better equipped to offset these pressures on the back of its scale and business diversity, resulting in less earnings and cash flow volatility relative to its peers.
Also its numerous acquisitions over the past years have helped it to gain a strong foothold in the industry. Since its IPO in Mar 2011 through the second quarter of 2016 the company spent $3.9 billion on acquisitions and has purchased 17 hospitals. The company expended $351 million, $766 million and $481 million for acquisitions of hospitals and health care entities during 2015, 2014 and 2013 respectively. During the nine months ended Sep 30, 2016, the company paid $343 million to acquire three hospital facilities and $125 million to acquire other non-hospital health care entities. Moreover, it recently announced a $650 million capital commitment to the East Florida division in response to growing demand in this market.
The company’s top line has been growing over the past several quarters due to robust volumes, improved payor and service mix, and effective cost management. The company’s revenues have grown at a CAGR of 7.2% between 2010 and 2015. The top-line growth was backed by increase in same facility admissions and equivalent admissions for eight consecutive years, same facility emergency room growth for nine consecutive years and same facility surgical growth for seven consecutive quarters through 2015. The company is expanding its own standalone ERs and urgent care centers to drive volumes, which in turn, will support top-line growth.
Its solid balance sheet, characterized by consistent generation of cash flows that are used for investment activities, is another positive. HCA Holdings’ balance sheet and cash flows are impressive and offer the potential for accretive mergers and acquisitions alongside shareholder-friendly capital deployment through buy backs and dividend payouts. Since the IPO in Mar 2011 through 2015, it generated $20.1 billion of cash flows from operating activities. In 2015, the company generated $4.7 billion of cash flows from operating activities, up 6.4% from the prior year. For the first nine months of 2016, cash flows from operations were $3.954 billion, up 24.5% from prior-year period. In November, the company authorized an additional share repurchase program for up to $2 billion. The company is expected to generate free cash flow of about $2.7 billion in 2017 and is likely to continue repurchasing shares as well as consider acquisitions and returning cash to shareholders as dividend. In October, HCA Holdings announced an agreement to terminate its lease of Oklahoma Children's Hospital. The agreement will bring the company $750 million of proceeds, further improving its financial flexibility.
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HCA Holdings Holds Promise Despite Headwinds: Here's Why
The uptrend in HCA Holdings Inc. (HCA - Free Report) explains its attractiveness in an uncertainty-ridden industry.
Year to date, the share of HCA Holdings have gained 9.3% as against a loss of 10% incurred by the Zacks categorized Medical-Hospital industry. Other players in the same industry such as Life Point Health Inc. , Universal Health Services, Inc. (UHS - Free Report) , Tenet Healthcare Corporation (THC - Free Report) , and Community Health (CYH - Free Report) recorded a loss of 21.7%, 11%, 50.5% and 78.4%, respectively, over the same time frame.
When the entire sector has underperformed, let us examine what helped HCA to stand out in the industry which has been reeling under the uncertainty over the changes that will be brought in by the Trump administration.
First and foremost HCA Holdings scale and size works in its favor, giving it a competitive advantage. It is much more than a hospital company. It is a fully integrated provider system that stretches across 42 markets in the U.S. and the U.K., with unique insights of the health care space. No market comprised more than 7% of revenues or 10% of adjusted EBITDA in 2015. It is also well diversified in its service lines, with no particular area representing more than 13% of its 2015 revenues. The company’s scale and diversified business mix provide it a competitive advantage in negotiating contracts and managing reimbursement uncertainty. Though HCA Holdings is likely to experience increased margin pressure due to slower reimbursement growth, it is better equipped to offset these pressures on the back of its scale and business diversity, resulting in less earnings and cash flow volatility relative to its peers.
Also its numerous acquisitions over the past years have helped it to gain a strong foothold in the industry. Since its IPO in Mar 2011 through the second quarter of 2016 the company spent $3.9 billion on acquisitions and has purchased 17 hospitals. The company expended $351 million, $766 million and $481 million for acquisitions of hospitals and health care entities during 2015, 2014 and 2013 respectively. During the nine months ended Sep 30, 2016, the company paid $343 million to acquire three hospital facilities and $125 million to acquire other non-hospital health care entities. Moreover, it recently announced a $650 million capital commitment to the East Florida division in response to growing demand in this market.
The company’s top line has been growing over the past several quarters due to robust volumes, improved payor and service mix, and effective cost management. The company’s revenues have grown at a CAGR of 7.2% between 2010 and 2015. The top-line growth was backed by increase in same facility admissions and equivalent admissions for eight consecutive years, same facility emergency room growth for nine consecutive years and same facility surgical growth for seven consecutive quarters through 2015. The company is expanding its own standalone ERs and urgent care centers to drive volumes, which in turn, will support top-line growth.
Its solid balance sheet, characterized by consistent generation of cash flows that are used for investment activities, is another positive. HCA Holdings’ balance sheet and cash flows are impressive and offer the potential for accretive mergers and acquisitions alongside shareholder-friendly capital deployment through buy backs and dividend payouts. Since the IPO in Mar 2011 through 2015, it generated $20.1 billion of cash flows from operating activities. In 2015, the company generated $4.7 billion of cash flows from operating activities, up 6.4% from the prior year. For the first nine months of 2016, cash flows from operations were $3.954 billion, up 24.5% from prior-year period. In November, the company authorized an additional share repurchase program for up to $2 billion. The company is expected to generate free cash flow of about $2.7 billion in 2017 and is likely to continue repurchasing shares as well as consider acquisitions and returning cash to shareholders as dividend. In October, HCA Holdings announced an agreement to terminate its lease of Oklahoma Children's Hospital. The agreement will bring the company $750 million of proceeds, further improving its financial flexibility.
HCA Holdings carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>