HCA Healthcare, Inc. HCA has been in investors’ good books on the back of its healthy revenue stream and a strong balance sheet position.
The company flaunts a stellar earnings surprise history, having outpaced the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 9.3%. This trend of estimate beats reflects the company’s operating efficiency.
Its VGM Score of A is also impressive. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.
Now let’s see what makes this stock an investor favorite.
HCA Healthcare has been witnessing steady revenue growth, evident from its 2012-2018 CAGR of 5.9%. In the first nine months of 2019, the same was up 9.9% year over year, courtesy of volume growth across markets, service lines and its recent buyouts. Analysts expect this trend to continue, backed by its efforts to enter large, evolving urban markets with the growing population in constant need of such services.
Acquisitions always fueled growth for HCA Healthcare. Its inorganic growth strategies led to increased patient volumes, enabled network expansion across several markets and added hospitals to its portfolio. In the first nine months of 2019, the entity purchased a seven-hospital health system in North Carolina and other nonhospital health care entities.
Moreover, HCA Healthcare recently closed its purchase of Galen College of Nursing, . With this consolidation, HCA Healthcare will be enhancing its existing pool of two nursing schools, namely Research College of Nursing and Mercy School of Nursing, as well as seven advanced nursing simulation training centers. We expect these expanding nursing facilities to help control costs and aid margins.
HCA Healthcare’s solid balance sheet is also impressive. The cash flows offer a scope for accretive mergers and acquisitions alongside shareholder-friendly capital deployment through buybacks. Its dividend yield stands at 1.1%, higher than its industry's average of 0.8%. Banking on its financial potency, the company would likely to continue adding shareholder value.
However, it has been witnessing escalating expenses over the past several years due to higher salaries and benefits, supplies plus other operating costs. Going forward, the company is expected to witness a rise in costs on account of its constant growth-related investments. Although the company is working on expense management, higher costs might weigh on its margins.
For 2020, the Zacks Consensus Estimate for earnings stands at $11.63, hinting at 10.4% growth from the year-earlier reported figure. Further, the consensus mark for revenues is pegged at $53.7 billion, implying a 5% rise from the year-earlier reported figure.
Shares of this Zacks Rank #3 (Hold) company have rallied 14.1% in a year's time, on par with its industry’s growth.
This looks pale in comparison to its peers like Universal Health Services, Inc. UHS, which has gained 15%, but visibly better than Community Health Systems, Inc. CYH and MEDNAX, Inc. MD, which have lost 35% and 22%, respectively, in the same time frame.
However, we expect these sturdy fundamentals and the growing top line to enable its share price to bounce back going forward.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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