HCA Healthcare, Inc.’s HCA shares have gained 12.7% in the past six months outperforming the hospital industry and the Medical sector. Over this time frame, the industry and the Medical sector have gained 11.2% and lost 0.1%, respectively. The S&P 500 gained 14.2% during the same period.
Higher admissions, expansion initiatives and a robust 2025 outlook bode well for HCA Healthcare. Moreover, despite declining outpatient surgery cases and the impact of Hurricanes Helene and Milton, HCA maintained its 2024 guidance, implying strength in its business model to navigate challenges. Now, the question arises whether investors should consider buying the stock or hold tight to their current investments. Let us answer that question by assessing HCA’s long-term growth prospects.
HCA 6-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 and a higher number of people under insurance coverage through their employers or exchanges. The company saw a 5.8% year-over-year increase in admissions during the first nine months of 2024.
HCA anticipates volume growth in the long term to be between 2% and 3%. Revenue per equivalent admission is expected to be between 2% and 3% in the long term. Volume growth in cardiac procedures and inpatient rehab bode well. Although outpatient surgeries declined in the third quarter, payer mix and acuity drove revenues. Expected strong demand in the coming days poises the company’s top line well for growth.
HCA Healthcare is effectively managing rising patient volumes by expanding its inpatient bed count and outpatient facilities, enabling it to meet increased demand. It currently has $6 billion worth of projects under development. The company expects to incur $5.1 billion in capital expenditures in 2024 to expand existing operations. By the end of 2024, it plans to add 600 inpatient beds and 100 outpatient facilities, bringing total sites to over 2,600. A strong footprint in its rapidly growing markets, such as Florida and Texas, bodes well.
The company’s focus on reducing the length of patient stays has further improved its operational efficiency. Additionally, HCA has successfully controlled contract labor expenses, with these costs making up only 4.6% of total wages and benefits in the latest quarter. This careful management of labor resources has positively impacted both efficiency and financial performance.
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.
Hurricanes Helene and Milton significantly impacted HCA's operations in the third quarter of 2024. However, HCA now expects all metrics for 2024 to come in the lower half of the ranges provided earlier. It expects adjusted EBITDA and diluted earnings per share growth in 2025 to be near or a bit above the upper end of its long-term growth range of 4-6% and 8-12%, respectively.
HCA’s Capital Deployment Update
HCA Healthcare’s strong profitability enables it to enhance shareholder value consistently. In the last reported quarter, it returned $1.8 billion to shareholders through share buybacks and $169 million as dividends. The company had $2.4 billion remaining under its repurchase program as of Sept. 30, 2024. It expects to repurchase shares worth $6 billion in 2024. With a dividend yield of 0.76%, HCA is ahead of the industry average of 0.59%.
The Zacks Consensus Estimate for HCA’s 2024 and 2025 revenues suggests a year-over-year uptick of 8.5% and 5.7%, respectively. Estimates for 2024 and 2025 bottom line imply 15.8% and 12.9% improvement year over year. However, the 2024 earnings estimates witnessed downward revisions in the past seven days.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
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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 14.26X, a bit higher than the industry average of 13.87X.
In comparison, its peers like Tenet Healthcare Corporation THC and Select Medical Holdings Corporation SEM are currently trading at forward 12-month price-to-earnings of 13.92X and 17.65X, respectively.
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Conclusion
HCA Healthcare is expected to benefit from volume growth driven by aging demographics, increased insurance coverage, and market expansion. However, its premium valuation compared to the industry and ongoing challenges may limit its short-term potential. For long-term investors, HCA’s strong fundamentals may justify holding the stock, but potential investors might remain cautious of the stock’s high price amid hurricane impacts.
HCA Healthcare currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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