HCA: Up More Than 50% Year-to-Date, Does HCA Have More Upside Ahead?
The S&P 500 is having a great year thus far, up 17.29%. This is well above the major index’s long-term average and this strong double digit performance is something that the vast majority of investors are going to be incredibly pleased with. However, the 17.29% year-to-date performance pales in comparison to the 50.92% year-to-date performance that HCA Healthcare Inc. (HCA) has generated and with this in mind, we wanted to take a look at this hospital operator to see whether or not HCA shares have more room to run after the fantastic results that they’ve posted through the first 7 months of the year.
HCA likely isn’t a stock that many investors have heard of. It certainly doesn’t carry the brand value of some of the big bio-tech/big-pharma stocks. However, this company is a major player in its field. Brenden Rearick, a Nobias 4-star rated analyst, highlighted the company’s size in a recent article, saying, “HCA is the largest health system in the U.S. by net patient revenue at over $44 billion; that’s nearly 50% greater than CommonSpirit Health, the second-largest system in the country.” He continued, noting that “HCA, which is based out of Nashville and operates across 2,000 facilities in both the U.S. and U.K.”.
Keith Speights, a Nobias 5-star rated analyst who publishes work at The Motley Fool, recently penned an article titled “3 Surprising Stocks That Have Crushed the Market so Far This Year” where he highlighted HCA’s 2021 gains. He began his HCA section by asking the all important question, “Why is the hospital chain having such a banner year?” Then, he quickly answered, “Chalk it up to a COVID-19 recovery.”
One might assume that hospitals would have thrived during a pandemic, but that wasn’t the case. Evan Niu, a Nobias 5-star rated analyst recently published an article at Millennial Money where he explained the weakness that hospital operators like HCA experienced last year saying, “One of the peculiar consequences of the COVID-19 pandemic was that many hospitals and other healthcare facilities took financial hits when the crisis started, as many patients avoided the facilities out of fear of exposing themselves to the deadly virus. People delayed many non-essential elective procedures—a major profit center for hospitals—out of an abundance of caution.”
Speights touched upon this as well saying, “Hospitals were hit hard last year during the worst of the pandemic. The biggest problem was that many more lucrative non-urgent surgeries had to be delayed. Those surgeries are no longer being pushed back, benefiting HCA.”
Niu highlighted HCA’s recent earnings result (which caused the stock to pop nearly 14%), saying, “Revenue in the second quarter came in at $14.4 billion, ahead of the consensus estimate of $13.6 billion. Same facility admissions jumped by 17.5%, while same-facility equivalent admissions were up 26.8%. The business is rebounding across the board as pandemic-related restrictions, which had previously been impacting demand and procedure volumes, have eased in recent months.”
Niu noted that HCA posted year-over-year growth in admissions, equivalent admissions, patient days, equivalent patient days, and outpatient surgery visits during Q2. He continued, saying, “That all resulted in net income of $1.45 billion, or $4.36 per share, easily beating the $3.16 per share in profit Wall Street was expecting. Adjusted EBITDA in the second quarter was $3.22 billion, including $822 million in government stimulus income.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Speights highlighted this growth in his article as well, mentioning that HCA management “expects demand will remain strong throughout the rest of 2021” which bodes well for the company’s bottom-line growth in a bounce-back year. Niu touched upon the company’s updated full-year guidance from the Q2 report, saying, “Thanks to the momentum HCA is seeing, the company boosted its full-year guidance. Revenue in 2021 is now forecast in the range of $57 billion to $58 billion, up from its prior outlook of $54 billion to $55.5 billion. This is the second consecutive quarter that HCA has increased its outlook after raising it in April. Adjusted EBITDA for 2021 should be $12.1 billion to $12.5 billion, which should result in earnings per share of $16.30 to $17.10. HCA Healthcare expects to spend approximately $3.7 billion in capital expenditures this year.”
With this increased guidance in mind, we’ve seen a handful of blue chip (4 and 5-star rated) analysts raise their price targets on HCA shares. Nobias 5-star rated Michael Wiederhorn of Oppenheimer placed a $275 price target on HCA. Nobias 4-star rated Ann Hynes of Mizuho followed suit with a $275 price target. Nobias 4-star rated Ralph Giacobbe of Citigroup updated his price target from $215 to $268. And, Nobias 4-star rated A.J. Rice of Credit Suisse came out with a $267 price target.
Overall, we see a recent average price target of $271.25 amongst the blue chip analyst group. This represents upside potential of approximately 9.2% when compared to HCA’s current share price of $248.20. Further, 81% of the credible authors that the Nobias algorithm tracks are “Bullish” on HCA shares. Right now, the average price target amongst the overall credible author community that we track is $272.50, representing upside potential of roughly 9.8%.
Disclosure: Nicholas Ward has no position in HCA. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.