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Why Should You Retain HCA Healthcare in Your Portfolio?

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HCA Healthcare, Inc. HCA has been in investors’ good books on the back of growth initiatives and cost-cutting measures.

Over the past 60 days, the company has witnessed its 2020 and 2021 earnings estimates move 84.6% and 7.7% north, respectively, reflecting optimism around the stock.

The company is well-poised for progress, evident from its favorable 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.

HCA Healthcare came up with an earnings surprise of 63.5%, on average, beating on the bottom line in three of the trailing four quarters while missing on the same in one.

Now let’s see how this company is an investor’s favorite.

The company reported second-quarter 2020 adjusted earnings of $1.50 per share. The Zacks Consensus Estimate was of a loss of 94 cents per share. Its revenues of $11.1 billion also beat the Zacks Consensus Estimate by 17.7%.

HCA Healthcare expanded its telemedicine product offerings with the rise in usage of telehealth medicine. The company witnessed a rise in Telehealth and virtual services amid the pandemic. In the second quarter, it performed more than 500,000 telemedicine visits. Given the current scenario, we expect this business to flourish further.

The company’s acquisitions have been instrumental in building its growth trajectory over the years. Its inorganic growth policies led to an increase in patient volumes enabled network expansion across several markets and added hospitals to its portfolio. The company’s takeovers are expected to add scale to its business, thereby positioning it better to weather the regulatory uncertainties in the healthcare sector. In the first six months of 2020, it had spent $500 million on the buyouts of hospitals and healthcare entities.

HCA Healthcare took a series of cost-management actions, such as travel freezes, regulation of a variable cost structure, reduction in discretionary spending, etc. These in turn, will likely aid margins. Costs dipped 2% in the first half of this year.

Its balance sheet and cash flows (the company consistently generated higher free cash flow for the past several years) are impressive and raise the potential for accretive mergers and acquisitions. Its cash flow provided by operating activities continues to be strong with the metric rising 12.4% and 240% year over year in 2019 and during the first six months of 2020, respectively.

However, the coronavirus outbreak required hospitals to keep their elective procedures on hold to accommodate any possible surge in COVID-19 infected admissions. Cancellation of elective surgeries to make room for coronavirus-infected patients is hurting the company’s revenues. The entity even withdrew its guidance because of the negative COVID-19 impact on same facility emergency room visits, same facility in-patient surgeries, hospital-based outpatient surgeries, etc.

The company's 2020 earnings estimate is pegged at $11.18, implying a 14.1% rise from the year-ago reported figure.

Its long-term growth rate stands at 11.1%, above the industry’s average of 7.7%.

Zacks Rank and Price Performance

Shares of this presently Zacks Rank #3 (Hold) company have gained 13.8% in the past year, outperforming its industry’s growth of 5%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other companies in the same space, such as Tenet Healthcare Corporation THC, Community Health Systems Inc. CYH and Acadia Healthcare Company Inc. ACHC) have also rallied 33.1%, 115% and 18% in the same time frame.

All the companies currently have the same Zacks Rank as HCA Healthcare.

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