Is HCA Stock a Good Investment?

HCA Healthcare Inc (NYSE:HCA) is a Nashville, Tennessee-based healthcare company and component of the S&P 500. This means you’re likely already invested in it through a retirement fund and should understand more about it.

The company owns and operates over 186 hospitals and thousands of care sites across the United States and United Kingdom.  

Healthcare as a % of GDP has been rising through booms and busts which begs the question, is HCA stock a good investment?

The company is no stranger to controversy – it paid over $2 billion in fines at the turn of the millennium for engaging in shady accounting practices. An HCA-owned hospital found itself in hot water again in April 2021 and was ordered to refund $23 million in Medicare overpayments by the HHS’ Office of Inspector General.

While a rising HCA share price and growing revenues are pluses, ongoing legal issues could create a problem for investors moving forward. Are these repeating accusations suggestive of a potential endemic issue in the company’s culture?

The company could still provide big returns for long-term investors seeking growth potential. Will HCA Healthcare leave investors with hot portfolios?

HCA Market Share Is Large In A Fragmented Space

HCA Healthcare has a market share of about 25.1 percent of retirees, which is a large portion of health care patients. But that’s just one piece of the entire market puzzle – there are 6,090 hospitals across the U.S. with 919,559 beds, according to the American Hospital Association.

This doesn’t include the company’s wide footprint of alternative and/or specialized care sites, including emergency rooms, urgent care centers, physician clinics, and surgery centers. Altogether, the company has approximately 2,200 sites across 21 states and the U.K.

It also has training programs that give it access to highly qualified medical professionals. The company’s schools can provide job placement within its hospital system, making for a great corporate training program. It also performs ongoing clinical research with partners like the Harvard Pilgrim Institute and the US Centers for Disease Control (CDC).

Overall, the hospital market is estimated at around $959.9 billion in 2021 with 2.3% market growth. This bucks the trend of the preceding 5 years in which the industry contracted by -2%.

This means investors should look for a competitive advantage against possible market contraction over the next decade. And increased competition will also inevitably come from telemedicine.

Nurses, surgeons, and other medical staff will always be necessary, but virtual care through automation, wearables, 3D printing, and other technologies could one day reduce the need for brick-and-mortar healthcare.

Does HCA Healthcare Have Competitive Advantages?

The company has several key ingredients that keep it at the forefront of hospital care – it attracts top talent through its Harvard and government partnerships. HCA Healthcare regularly publishes in medical journals that give it a high profile and makes working for it more prestigious than other career routes.

It operates several nursing schools, along with 56 teaching hospitals. This gives it access to a pool of talent that can be trained directly into the hospital system while still receiving a degree from an accredited institution. That helps the company maintain its prestigious status and market share.

And the reason it can publish so many reputable papers is because it long ago fostered a data-first approach to healthcare. Patient data is used for medical studies in peer-reviewed journals that attract and retain a high-quality talent pool.

Besides medical education, HCA Healthcare does invest in technology and bridges the gap between academic and enterprise healthcare. This helped it maintain its market share since 1968 and continue generating big cash flows still today.

In fact, the company’s financial performance is very impressive.

Are HCA Revenues Growing?

HCA Healthcare is indeed growing revenues – the company’s 2020 earnings report showed $51.53 billion in revenue for the year. This compares to $51.33 billion in 2019 and guidance of $55.5 billion for 2021, which is a respectable growth rate for its size.

Because the company has such a large real estate footprint, its bed capacity is enormous and was quickly filled with COVID-19 patients. And its emergency rooms and urgent care clinics are at the forefront of curbside treatments and ways to receive socially distanced medical care.

However, it wasn’t all rosy – the pandemic did create several obstacles for hospitals to overcome. Not only were there not enough beds for all the patients at the onset, but many people avoided pre-emptive and routine checkups because of fear of being in a pandemic hot zone.

Hospitals and the healthcare industry in general faced several hurdles in 2020 that will continue to affect them through the decade. But the release of multiple vaccination options is returning things to normal. How long that takes and what the new normal is by then remain to be seen.

But we can check earnings growth for an indicator.

What Rate Are HCA Earnings Growing?

HCA earnings tend to spike, perhaps unsurprisingly, around the Winter season and decline marginally during the summer months.

The company’s fourth quarter 2020 capital expenditures were $748 million. That number does include some court costs, but it doesn’t include the most recent regulatory fine. It also includes acquisitions and debt repayments.

Overall cash flows in the fourth quarter of 2020 totaled $3.58 billion, compared to $2.50 billion in the fourth quarter of 2019. This really highlights the growth and why both the company and analysts are bullish on its 2021 performance.

Some of this enthusiasm is also related to the company’s management, although some shareholders believe the company’s executive leadership is a bit too generous. This is especially true considering the high-profile financial scandals over the years.

HCA Management Quality

HCA Healthcare was founded by Dr. Thomas Frist Sr. Dr. Thomas Frist Jr., and Jack Massey. They formed the company to standardize healthcare, and they do it by investing in high-quality people. Executive leadership includes CEO Samuel N. Hazen, an almost 40 year veteran of the firm.

Hazen had been with the company for over 35 years before becoming Chief Executive Officer in 2019. This was over a decade after the company was involved in an insider trading suit that also alleged accounting fraud. Although no wrongdoing was ever admitted, shareholders were paid $20 million.

Will HCA Stock Fall?

The company faces plenty of headwinds that are vaccine related.

First, those vaccine applications alone will draw people to hospitals, and with a fully (or at least majority) vaccinated population, hospital beds can be better distributed.

And people will be more likely to participate in the process of receiving medical care again. This will certainly drive revenues. The only things the company needs to ensure it does moving forward is integrate telemedicine solutions and be mindful of insurance and accounting practices.

Is HCA Stock a Good Investment? Conclusion

HCA is growing due to the pandemic and expects a strong year in 2021. Investing anytime to receive those headwinds is great, but beyond that, there’s no telling. The company has a history of legal issues and is being boosted by a pandemic that should inevitably slow down.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.