The uptrend in HCA Holdings Inc. HCA 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. LPNT, Universal Health Services, Inc. UHS, Tenet Healthcare Corporation THC, and Community Health CYH 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.