U.S. Markets open in 7 hrs 37 mins

Which Stock to Emulate HCA Healthcare (HCA) Success in 2019?

Zacks Equity Research

HCA Healthcare HCA turned out to be one of the prominent players in the healthcare industry during 2018. Following a solid 2017, the company continued with the momentum in the first nine months of the current year.

HCA Healthcare’s top line, which has seen steady growth since 2012, was consistent with its bull run in the first nine months of the ongoing year. Witnessing a 6.3% CAGR, revenues rose 7.3% during the first nine-month period of 2018. This upside was constantly backed by same facility admissions and equivalent admissions, same facility emergency room growth and surgical growth. The company’s admissions and equivalent admissions grew 4.1% and 4.7%, respectively in 2018.

Shares of this Zacks Rank #3 (Hold) company have surged 38.1% year to date, outperforming its industry’s increase of 12.7%.

Meanwhile, other players from the similar space, such as Community Health Systems, Inc. CYH and Mednax, Inc MD have lost 33.6% and 39.6%, respectively. The company also boasts an impressive VGM Score of A. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.  

The company’s inorganic growth strategy fulfilled by regular acquisitions also drove overall growth. In the first three quarters of this year, the company spent $1.05 billion on buyouts.  HCA Healthcare is very particular about targeting high-growth markets wherein demand for health care is high and unemployment, low. This has helped the company expand patient admissions at a time when other players in the industry are suffering soft volumes.

The company has also divested some of its businesses to focus on its core operations. Its efforts to grow into other business verticals such as freestanding emergency rooms, ambulatory surgery centers, urgent care centers, physical clinics, etc. have metamorphosed it from a hospital company into a healthcare entity while resultantly opening up new revenue streams.

HCA Healthcare, however, has been ailing from high labor cost due to shortage of nurses in the industry, which has induced an increase in operating expenses. Nevertheless, the company has addressed this issue by improving retention rate, recruitment, compensation programs, etc.

HCA Healthcare has been quite aggressive when it comes to adopting technology. From strategy to implementation and analysis, the company uses advanced technology for improving its business processes and enhancing patient care. To improve patient care, the company uses a number of apps like PatientKeper, Mobile Heartbeat, Genospace, etc.

Moreover, the company’s stable financial position has enabled it to grow and sustain its leading position in 2018. Its strong cash generating capacity for the past many years, which continued into the first nine months of 2019 (operating cash flow of $4.6 billion is up 24% year over year), is impressive. A solid financial flexibility has facilitated a balanced approach to capital allocation including investing in core growth markets, repurchasing shares of common stock and completing complementary consolidations.

Notably, the company delivered a positive surprise of 11.22% in the trailing four reported quarters. The company gained more than 60% in 2018, which remains a benchmark.

The Zacks Consensus Estimate for fiscal 2018 earnings is likely to soar 41.73% year over year. The consensus mark for revenues is expected to rise 6.69%.

The stock has a long-term expected growth rate of 12.2%, more than its industry’s average of 10.50%, which highlights its growth potential. Further, the company has a market cap of $ 39.9 billion.

Driven by its strong fundamentals, HCA Healthcare is predicted to keep its stellar show alive in 2019. But there are also other companies in this space, which are projected to gain next year. The industry would likely witness a ramped-up M&A activity, advanced technology, tariff impact and a favorable tax rate in the year ahead, which might present some lucrative opportunities for the industry players.

Our Top 3 Picks

Apart from HCA Healthcare, there are a few other top-performing stocks that have potential to outperform in 2019. We have zeroed in on three such bets that sport a Zacks Rank #1 (Strong Buy) or 2 (Buy) and have a VGM Score of A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.

Molina Healthcare, Inc. MOH is a multi-state managed care organization, participating exclusively in government-sponsored healthcare programs. The company flaunts a Zacks Rank of 1 and a VGM Score of B. Its earnings growth estimate for the current year is 1551.79%. The Zacks Consensus Estimate for 2018 and 2019 earnings has improved 25.2% and 31.3%, respectively, over the last 60 days. In 2019, it is expected to gain from Medicaid expansion. Year to date, the stock has surged 49.7%, outperforming its industry’s rise of 5.8%.

The Ensign Group, Inc. ENSG provides health care services in the post-acute care continuum and other ancillary businesses in the United States. This Zacks Rank #2 company also holds great growth prospects in the upcoming year. The company has a VGM Score of A and is expected to thrive on the back of Transitional & Skilled Services and a robust inorganic growth strategy. It has witnessed its 2019 earnings estimate inch 1% up over the last 30 days. Its current-year and 2019 earnings estimates reflect a respective 34.1% and a 12.2% jump year over year. The stock has returned 74.9% so far this year against its industry’s decrease of 5.5%.

Teladoc Health, Inc. TDOC offers telehealth services across the globe. It provides an array of services and solutions covering 450 medical subspecialties. This stock is a Zacks #1 Ranked player and has a VGM Score of A. The company has risen 38.7% year to date, outperforming its industry’s growth of nearly 2.8%. Its rapidly burgeoning client base, higher membership and accelerated acquisitions would likely support its growth in 2019.

In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?

These 10 are painstakingly handpicked from over 4,000 companies covered by the Zacks Rank. They are our primary picks poised to outperform in the year ahead. Be among the first to see the new Zacks Top 10 Stocks >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Molina Healthcare, Inc (MOH) : Free Stock Analysis Report
Community Health Systems, Inc. (CYH) : Free Stock Analysis Report
HCA Healthcare, Inc. (HCA) : Free Stock Analysis Report
Mednax, Inc (MD) : Free Stock Analysis Report
The Ensign Group, Inc. (ENSG) : Free Stock Analysis Report
Teladoc, Inc. (TDOC) : Free Stock Analysis Report
To read this article on Zacks.com click here.