HCA Holdings Well Poised For Growth In Spite Of Headwinds
Zacks Investment Research | Dec 09, 2016 06:15AM ET
On Dec 8, 2016, we initiated coverage on HCA Holdings, Inc. (NYSE:HCA) – one of the largest non-governmental operator of acute care hospitals in the U.S. At the end first nine months of 2016, the company had 169 hospitals and 117 freestanding outpatient surgery centers.
The company’s scale and diversified business mix provides it a competitive advantage. The company’s top line has been growing over the past several quarters due to robust volumes, an improved payor and service mix, and effective cost management.
Its numerous acquisitions over the past many years have helped it to gain a strong foothold in the industry.
The stock of HCA Holdings has gained recently. Year to date, the stock has returned 6.4% compared with negative returns of 8.3% by the Zacks categorized Medical Hospital industry. It has also outperformed other players in the same space, namely Life Point Health Inc. (NASDAQ:LPNT) , Universal Health Services, Inc. (NYSE:UHS) , Tenet Healthcare Corp. (NYSE:THC) , and Community Health.
HCA Holdings’s superior stock performance is reflective of its industry leadership, well-diversified business profile, favorable earnings performance over the past many quarters and a number of accretive acquisitions. It also mirrors its balance sheet strength which is based on consistent cash flow generation to support its investments.
However, the company’s bad debts are likely to drain its bottom line. Also, pricing growth in the medium term is likely to be affected as payor mix shifts from managed care to the lower-priced Government business.
Also, President-elect Donald Trump is almost certain to take steps to repeal former President Barrack Obama's Affordable Care Act (ACA). This has cast a pall on the hospital sector. The industry benefited under the ACA which led to a decline in uninsured rate and enabled hospitals to serve more people with insurance, leading to lower bad debts. Any change in the ACA now could leave millions of Americans uninsured and unable to pay for hospitalization, pushing up bad debts and ultimately cutting into the profits of the company.
HCA Holdings carries a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .
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