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3 Hospital Stocks That Crushed S&P 500 YTD, Set to Rise Further

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The hospital companies bounced back in 2021 after having suffered weak volumes last year due to the pandemic. In 2020, the hospital industry players witnessed lower admissions with the decline in non-COVID patient admissions.

To accommodate coronavirus patients, hospitals were directed to put elective medical procedures, non-essential medical, surgical and dental procedures on hold, which dented their revenues to a large extent. Moreover, they had to incur huge expenses to comply with the COVID-19 norms, such as purchases of personal protective equipment (PPE), preparations for ICU and other expenses.

Fortunately, the companies were able to make a comeback this year and are witnessing a surge in admissions. This upside is also evident because companies like Community Health Systems, Inc. (CYH - Free Report) hiked their respective 2021 guidance. With widespread vaccination drives, the industry players are now well-poised for growth. Other factors contributing to the favorable environment are emergency room visits, value-based care models, demand for telehealth services and cost-curbing measures.

The industry leaders are also constantly forging alliances to penetrate geographies and meet the demands of the market.

Will the Momentum Stay?

We believe that the prospects of the hospital industry are bright despite several challenges stemming from the COVID-19 pandemic.

The overall bullish scenario makes us optimistic about its consistent growth, which should boost the potential of the participating companies with sound business fundamentals.

Here are some factors that will positively impact the companies.

Increasing Admissions: The companies are also witnessing growth in revenues on the back of rebounding admissions. Hospitals are now able to take up procedures that were stalled last year. People are now confident of visiting hospitals after being vaccinated. This leaves the hospitals with an assurance of better patient volumes.

Aging Population: As seniors account for an increasing percentage of the total U.S. population, we believe that demand for hospital services will continue to shoot up. The rising number of baby boomers are a key catalyst for the hospital companies. This demographic change along with the rising incidence of diseases will drive the industry’s growth.

Telehealth Services: To ensure access to healthcare even when staying at home, hospital companies, such as Mednax, Inc. (MD - Free Report) are making investments in the business line. We expect demand for telemedicine to be intact, given its efficiency and the growing popularity. The ongoing pandemic scenario made telehealth services ranging from video consultations to remote patient monitoring as the only feasible option for patients to seek medical help.

The pandemic itself made people realize the importance of remote healthcare services, who were earlier reluctant to adopt the same. Also, it was the first time for several clinicians to resort to a virtual platform for addressing healthcare needs, thereby minimizing exposure to the coronavirus. The telehealth emerged as a convenient tool to offer medical care within the comforts of a patient’s home at lower rates.  

Mergers & Acquisition Strategy: The hospital industry players continue to intensify the M&A move following a lull over the last year due to the pandemic. The M&A activities helped companies boost their business scale and expanded their geographical presence. Extensive vaccinations and a gradual revival of the global economy will increase the players’ spending capabilities.

3 Stocks on Watchlist

The Zacks Medical-Hospital industry, housed within the broader Zacks Medical sector, currently carries a Zacks Industry Rank #113. This places it in the top 45% of more than 253 Zacks industries.

The Zacks Hospital industry has grown 38.6% year to date compared with the S&P 500 composite Index’s rally of 28.6%.

These hospital stocks hold ample prospects to retain stability in the days ahead. Here are three stocks that presently have a Zacks Rank #3 (Hold) and a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

HCA Healthcare, Inc. (HCA - Free Report) is one of the leading companies in the hospital industry with a whopping market capital of $79.85 billion. HCA is witnessing a revival of revenues on rising admission, outpatient surgeries and other procedures. In the first nine months of 2021, the top line improved 17.3% year over year. Total equivalent admissions in the same time frame increased 8.8% while revenues per equivalent admission rose 8.4% year over year. Volumes across all businesses grew in the first nine months.

HCA is likely to continue performing well on the back of numerous acquisitions, rising admissions, diversified business, telemedicine business and capital deployment.

Concurrent with solid third-quarter 2021 results, HCA Healthcare raised its 2021 outlook. Management expects current-year revenues in the band of $58.7-$59.3 billion, up from the previous guidance of $57-$58 billion.
Adjusted EBITDA is forecast between $12.5 billion and $12.8 billion, up from the prior projection of $12.1-$12.5 billion.

For 2021, HCA Healthcare’s EPS is expected to be $17.20-$17.80, up from the prior estimate of $16.30-17.10. HCA’s earnings managed to beat estimates in all the trailing four quarters, the average being 21.7%. The earnings estimate for the current year indicates an upside of 63.5% from the year-ago reported figure.

Shares of HCA have soared 56.1% in a year’s time.

Tenet Healthcare Corporation (THC - Free Report) is gaining from acquisitions and strategic alliances aimed at boosting its scale of business. THC’s cost-management program successfully reduced its operating expenses.

In the first three quarters of 2021, revenues surged 38.9% year over year owing to solid volumes. THC also updated its outlook after releasing third-quarter 2021 results. It now estimates net income per share to be $7.09-$7.50, higher than the prior guidance of $6.25-$7.17.

Net operating revenues are anticipated between $19.5 and $19.8 billion, up from the prior forecast of $19.25-$19.65 billion.

Adjusted EBITDA is estimated to be $3.275-$3.325 billion, up from the prior prediction of $3.150-$3.250 billion.

Adjusted EPS is expected within $6.15-$6.38, higher than the previous guidance of $5.23-$5.73.

Over the past seven days, Tenet Healthcare has witnessed its 2021 earnings estimate move 1.3% north. THC’s bottom line managed to beat estimates in all its trailing four quarters, the average being 58.2%. The consensus mark for 2021 earnings implies an upside of 36.2% from the year-ago reported figure.

Shares of THC have gained 100.7% in a year’s time.

Community Health has been gaining from an aging population, addition of facilities, growing demand for healthcare services, declining expenses and accretive acquisitions. Over the years, acquisitions have played a key role in building CYH’s growth trajectory. The same made investments in telehealth, gaining substantially amid the COVID-19 environment.

Community Health’s restructuring initiatives enabled it to lower its costs to a great extent.

Following third-quarter results, CYH lifted its 2021 guidance. Adjusted EBITDA is now anticipated within $1,780-$1,820 million, higher than the previous projection of $1,700-$1,800 million. Net operating revenues are now projected in the range of $12,150-$12,350 million, up from the prior guidance of $11,900-$12,300 million.

Community Health's earnings estimate suggests an upside of 271.1% from the year-ago reported figure. CYH managed to deliver a trailing four-quarter surprise of 675%, on average.

The stock has gained 79% in a year’s time.

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