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Moody's Ups Rating Outlook on HCA

Zacks Equity Research

Moody’s Investors Service, the credit rating wing of Moody’s Corporation (MCO) allocated a “B1” Corporate Family Rating, “B1-PD” Probability of Default Rating and an “SGL-2” Speculative Grade Liquidity Rating to HCA Holdings, Inc. (HCA). The rating agency also upgraded the rating outlook for HCA to positive from stable. Also, senior unsecured notes were affirmed at “B3”.

The upward revision in the outlook came on the back of HCA Holdings’ scale of operations and competitive strength. These strengths position the company to generate revenue and EBITDA growth and also to compete successfully with its peers in terms of margins.

Particularly, margin expansion is likely to benefit from the Affordable Care Act implementation in 2014. Moody’s is also of the opinion that despite returning capital to its shareholders, HCA Holdings’ cash flow generation will remain strong enough to back inorganic growth.  

The Corporate Family Rating reflects the company’s position as one of the largest hospital operators with potential to enhance operating leverage. Also, the company is visualized by Moody’s to be capable enough in restricting its debt levels going forward.

Moody’s stated that the ratings are liable to a downgrade if HCA Holdings witness a decline in same-facility adjusted admissions or same-facility revenue per adjusted admission. Also if the debt-burden of the company increases leading to a debt to EBITDA ratio above 5.5x, the ratings can be subject to a downgrade.

Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence in the stock as well as in maintaining creditworthiness in the market. We believe that HCA Holdings’ present score with the credit rating agency will help it write more business, going forward.

HCA Holdings Inc. currently carry a Zacks Rank #3 (Hold). Some better-ranked stocks in the healthcare services sector include VCA Antech Inc. (WOOF) and Acadia Healthcare Company, Inc. (ACHC).  While Acadia Healthcare carries a Zacks Rank #1 (Strong Buy), VCA Antech holds a Zacks Rank #2 (Buy).

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