HCA Holdings (HCA) raised its full-year guidance on solid core operations and on the upside from health care reform Wednesday. But that forecast may be too conservative, say analysts, because ObamaCare could keep strengthening earnings and revenue.
The hospital operator also pre-announced Q2 results far above analyst estimates. HCA shares leapt 10.5%, leading a broad hospital stock rally that included Universal Health Services (UHS), Community Health System (CYH) and Tenet Healthcare (THC).
Nashville-based HCA, which operates about 165 hospitals and 115 freestanding surgery centers in 20 states and England, upped its 2014 EPS view to $4-$4.25 from $3.45-$3.75 and lifted the low end of its revenue view to $36 billion-$36.5 billion from $35.5 billion-$36.5 billion.
Consensus forecasts for the full year are EPS of $3.71 and revenue of around $36 billion.
ObamaCare Vs. Core Ops
But Wells Fargo analyst Gary Lieberman said that HCA's figures still look cautious, since most of the upside was likely the result of the Affordable Care Act and the $142 million that HCA received from the Texas Medicaid Waiver Program, benefits that are likely to continue.
"Based on that, we think it is possible more of the beat was due to health care reform; in which case, it would appear that HCA's increase in guidance for the year is rather conservative, since that benefit will continue," Lieberman wrote in a research note. "HCA's increase in guidance of $300 million-$400 million would appear to primarily take into account the upside in the quarter vs. consensus of $318 million.
But Avondale Partners analyst Paula Torch says that the upside can be attributed more to the company's core operations, which are "best in breed.
HCA has more acute procedures, "better revenue, higher volumes, because operationally they're so strong," Torch said in an interview, adding, "Both on volume and on revenue, they've really outperformed on a difficult (comparison) to last year.
The company also sees Q2 revenue rising 9.2% to $9.23 billion, topping views for $8.86 billion. Earnings are anticipated to rise 17.6% to $1.07 per share, beating analyst estimates for 92 cents.
"Results for the second quarter of 2014 exceeded our internal expectations, both in terms of our core operations and health care reform," said HCA CEO R. Milton Johnson in a release.
Same-facility admissions, or inpatient volume, grew 1.2% in Q2. Same-facility-equivalent admissions, a combination of inpatient and outpatient volume, increased 2.2%. HCA sees same-facility revenue per equivalent admission, a measure of pricing, up 5.4%, which Torch calls an "impressive increase.
And if Texas and Florida participate in Medicaid expansion, analysts agree that the company, which has more than half its beds in those two states, stands to benefit even further.
"We believe there's a better chance Florida will expand vs. Texas, and with 27% of beds, we believe that could be a nice catalyst to the stock if Florida moves forward in 2015," said Torch in a July 1 note.