Stock Analysis: Why is it a good idea to add HCA Healthcare to your portfolio

The recent improvement in the pandemic situation, with the vaccination program catalyzing market reopening, is driving the demand for non-COVID-related healthcare services and elective procedures. Hospital chain HCA Healthcare, Inc. (NYSE: HCA), which was hit by the poor in-patient occupancy initially, made a strong recovery this year.

Scale Matters

While staying at the forefront of COVID care, the Nashville-headquartered holding company kept its community support program alive and continued to engage in urgent care activities. HCA operates around 185 hospitals and 2,000 care sites through its subsidiaries, offering holistic patient care that makes it the largest acute-care chain in the US. The scale matters when it comes to growing revenue.

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Read management/analysts’ comments on quarterly results

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The company’s stock reached a record high in mid-September after making steady gains for more than a year. Having retreated to the pre-peak levels now, HCA offers a fresh buying opportunity that most investors wouldn’t want to miss. Experts’ consensus rating on the stock is strong buy, which mainly reflects the bullish 12-month target price that represents a 16% upside from the last closing price.

Another factor that adds to the stock’s appeal is the slowly but steadily growing dividend. Also, the company has an efficient share buyback program in place.

In the Pipeline

The management’s aggressive growth initiatives, focused on further expanding the network and broadening market share, indicate that the best is yet to come from the company. After acquiring Brookdale Home Health a few months ago, it is pursuing more such deals to expand the regional delivery network.

From HCA Healthcare’s Q2 2021 earnings conference call:

“What we are encouraged by is each month this year, we’ve seen a sequential improvement in overall labor metrics with respect to turnover, with respect to recruitment. And so we’re encouraged by our efforts up to this point. I will also tell you that our labor costs from the second quarter to the — from the first quarter, rather, to the second quarter are essentially stable, which gives us some confidence that our efforts are working. Obviously, there’s still uncertainty with respect to inflation.”

While HCA’s inconsistent bottom-line performance during the early phase of the pandemic — in comparison with the consensus estimates — disappointed the market, things improved and earnings surpassed expectations in the trailing three quarters.

Back on Track  

In the second quarter, total revenues jumped to $14.4 billion from $11.1 billion in the prior-year period. Consequently, net earnings rose 38% annually to $4.36 per share. There was a 17.5% increase in same-facility admissions and a 26.8% jump in same-facility-equivalent admissions during the three-month period. The numbers also beat the estimates.

Since performance was impacted by the pandemic last year, the year-over-year comparison becomes difficult. So, the 2.7% growth in admissions compared to the second quarter of 2019 gives additional context to the story. The third-quarter results are expected to be released on October 22 before the opening bell.

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Infographic: UnitedHealth Group reports Q2 2021 earnings

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HCA’s market value more than doubled since falling to a two-year low in the early months of last year. After withdrawing from last month’s record high, the stock is gathering momentum ahead of the earnings release. It closed Wednesday’s regular session almost flat and settled slightly below $240.