3 Hospital Stocks to Buy as the Top-Ranked Industry Rebounds
Zacks Investment Research | Aug 08, 2021 09:09PM ET
The year 2021 marks a comeback for the hospital industry, which suffered last year due to the pandemic. Revenues of the players in the Hospital industry came under pressure in 2020 when non-COVID patient admissions declined.
To accommodate a coronavirus patient, hospital facilities were directed to put elective medical procedures, non-essential medical, surgical and dental procedures on hold, which carry higher profit marginsThus the influx of COVID-19 patients pushed back non-pandemic admissions that dented earnings of the companies in the hospital sector.
On top of this, high expenses to comply with the COVID-19 norms including purchases of personal protective equipment (PPE), preparations for ICU and other costs weighed on the margins.
With widespread vaccination and restrictions mostly being lifted now, patients whose elective procedures and surgeries were withheld are visiting hospitals. This is also evident from the surge in non-coronavirus admissions for almost all players who posted revenues and earnings beat, this reporting cycle. Most participants upped their earnings guidance for the full year, indicating a favorable operating climate ahead.
Zacks Industry Rank Indicates Solid Prospects/h3
The group’s Zacks Medical-Hospital industry currently carries a Zacks Industry Rank #26, which places it in the top 10% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance. Each of these companies carries a Zacks Rank #2 (Buy) at present. You can see .
Industry Outperforms Sector and the S&P 500/h3
The Zacks Hospital Industry has outperformed the S&P 500 and its own sector over the past year.
While the stocks in this industry have collectively rallied 41.9%, the S&P 500 composite has increased 21.7%. During the same time period, the Zacks Medical sector has declined 1.1%.
Image Source: Zacks Investment Researchh3 3 Hospital Stocks Worth Betting on/h3
HCA Healthcare (NYSE:HCA), Inc. ACHC provides the behavioral healthcare treatment. The pandemic-led stress saw a spike in the number of people suffering mental health issues and substance use disorders.
During the most recent reported quarter, its earnings and revenues surpassed estimates by 12.7% and 3.8%, respectively. The company continued with its beat streak for the seventh consecutive quarter.
Revenues gained from an increase in patient day and revenue per patient day. It reported solid volume trends with patient admission rising 6.9% in the first half of this year compared with the last year’s lukewarm scenario when admissions declined 0.6%.
An upbeat guidance for 2021 was another positive. Revenues are now estimated between $2.28 billion and $2.32 billion for 2021, up from the prior guidance of $2.24-$2.29 billion. Adjusted EBITDA is projected to be $530-$550 million, higher than the previous outlook of $500-$530 million. Adjusted earnings per share are forecast within $2.50-$2.70, up from the earlier view of $2.30-$2.55. Operating cash flows are expected to be $275-$310 million for this year.
The updated revenue guidance suggests 10% growth. This top-line growth is very solid compared with the respective 3.9% and 5.8% improvement achieved in 2020 and 2019. Acadia Healthcare’s growth strategy, which includes network expansion through addition of beds and setting up wholly-owned de novo facilities through strategic joint ventures and acquisitions, bodes well.
The stock has rallied 24.4% year to date and is poised to grow further.
The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 4.9% upward over the past 30 days.
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