HCA Holdings: Key takeaways from its 3Q14 earnings release (Part 10 of 10)
Reading through the multiples
Companies in the healthcare industry (XLV) generally carry high debt on accounting balance sheets. As a result, forward-looking EV/EBITDA (enterprise value to earnings before interest, taxes, depreciation, and amortization) is used to analyze performance over time.
HCA Holdings (HCA) released its third-quarter earnings on October 28, 2014. The graph shows a decline of about 12% in its share price following the release, from $71.28 to a low of $62.94 on November 14, 2014. Following its 3Q14 earnings release, HCA’s EV/EBITDA remained in the range of 6.5x to 7.0x. All the analysts tracking the company have rated HCA Holdings, or HCA, as a “buy.”
Market sentiment
The company suffered a dip in its share price between October 28, 2014 and November 14, 2014. This was mainly a market reaction to the Supreme Court’s decision to hear a case against subsidies provided through federally run insurance exchanges. The case at issue is based on a phrase from the Affordable Care Act that appears to restrict subsidy eligibility to states with state-run insurance exchanges. People in at least 34 states with federally run insurance exchanges are at risk of losing out on the subsidies.
According to estimates by the Kaiser Family Foundation and Bloomberg Intelligence, about 85.6% of HCA’s total bed capacity is located in at-risk states. Community Health Systems (CYH) has the highest exposure, with 93.1% of its bed capacity at risk. Meanwhile, Universal Health Services (UHS) has the lowest exposure, with only 54% of its bed capacity in these 34 states. Tenet Healthcare (THC) and LifePoint Hospitals also have substantial exposure to at-risk states that respectively amounts to 85.6% and 80.3% of bed capacity.
These levels of exposure have affected investor expectations for the entire hospital industry.
Insider trading
Chief medical officer for HCA Holdings, Jonathan B. Perlin, unloaded 10,000 shares of the company’s stock on November 3, 2014. This transaction also affected investor sentiment and pushed down stock prices.
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