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Zacks Industry Outlook Highlights HCA Healthcare, Universal Health Services, Tenet Healthcare, Acadia Healthcare Company and Community Health Systems
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For Immediate Release
Chicago, IL – December 13, 2023 – Today, Zacks Equity Research discusses HCA Healthcare Inc. (HCA - Free Report) , Universal Health Services Inc. (UHS - Free Report) , Tenet Healthcare Corp. (THC - Free Report) , Acadia Healthcare Company, Inc. (ACHC - Free Report) and Community Health Systems, Inc. (CYH - Free Report) .
Technological innovation and digital transformation are poised to confer a competitive edge, boosting efficiency for the Zacks Medical-Hospital industry players. Growing competition in this market remains a common theme. As the COVID-19 impact wanes, M&A and consolidation activities are expected to pick up in the fragmented market.
Medical inflation and workforce challenges are keeping the industry players under pressure. With utilization, expenses are expected to improve for the hospital companies. Companies like HCA Healthcare Inc., Universal Health Services Inc., Tenet Healthcare Corp., Acadia Healthcare Company, Inc. and Community Health Systems, Inc. are expected to benefit from these developments.
Industry Overview
The Zacks Medical-Hospital industry comprises for-profit hospital companies that provide healthcare through different types of hospitals, such as acute care, rehabilitation and psychiatric. These hospital entities are engaged in internal medicine, general surgery, cardiology, oncology, neurosurgery, orthopedics and obstetrics, telehealth services, mental health care and diagnostic and emergency services.
Revenues of these companies depend on inpatient occupancy levels, medical and ancillary services ordered by physicians and provided to patients, and the volume of outpatient procedures. These hospital companies receive payments for patient services from the government under the Medicare program, Medicaid or similar programs, managed care plans (including plans offered through the American Health Benefit Exchanges), private insurers and directly from patients.
4 Key Trends Defining the Hospital Industry's Future
Embracing the Digital Frontier: Hospitals are leveraging ongoing technological advancements to enhance services and drive growth. This shift optimizes operations, reduces costs, enhances convenience and elevates the overall patient experience. The adoption of telehealth and telemedicine, accelerated by the COVID-19 pandemic, is expected to persist in its growth trajectory. Companies are incorporating artificial intelligence (AI) and automation, coupled with real-time analytics, to deliver quality care. AI aids in refining clinical workflow management and medical diagnoses, reducing patient wait times and treatment costs.
Patient Volume Growth: The resurgence of deferred elective procedures in recent quarters, post-pandemic constraints, has propelled patient volumes. Nevertheless, concerns linger for patients due to medical inflation, escalating coverage costs and financial constraints, prompting delays in addressing non-emergency medical needs. The upswing in out-of-pocket costs poses a potential deterrent to patient volume growth.
However, mitigating factors such as the Affordable Care Act (ACA) and comparable safety nets may offer some relief in this challenging scenario. The U.S. Census Bureau's revised report indicates that rapid growth in the 65+ age group, driven by scientific and healthcare advancements, is amplifying demand for hospital services.
Escalating Costs: The upsurge in patient volumes, along with increased prices for hospital supplies and inflationary pressures, is projected to amplify hospitals' operating costs. While workforce challenges show signs of improvement, they persist as a concern. Companies are strategically prioritizing labor productivity enhancements and the integration of new technologies to optimize expenditure. Additionally, leveraging contract renegotiations with suppliers and vendors is identified as a potential catalyst for cost management and operational efficiency.
Resurgence in M&A: Merger-and-acquisition (M&A) activity in hospitals and health systems, having sharply declined during the COVID-19 pandemic, is now witnessing a robust rebound. The fragmented industry is expected to see several deals in the upcoming days. Business consolidation, new tech partnerships and evolving business models can majorly improve hospital companies' profitability. Per a Deloitte report, 86% of surveyed health system executives foresee M&A substantially impacting their 2024 strategic plans.
Zacks Industry Rank Indicates Rosy Outlook
The group's Zacks Industry Rank, which is the average of the Zacks Rank of all member stocks, indicates bright near-term prospects. The Zacks Medical-Hospital industry, which is housed within the broader Zacks Medical sector, currently carries a Zacks Industry Rank #90, which places it in the top 36% of nearly 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry's positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group's earnings growth potential.
Before we present the stocks that you may want to monitor, let's take a look at the industry's recent stock market performance and valuation picture.
Industry Outperforms Sector But Lags S&P 500
The Zacks Medical-Hospital industry has fared better than its broader sector over the past year but lagged the Zacks S&P 500 composite. During this period, the stocks in this industry have gained 5.7% against the Zacks Medical sector's 9.4% decline. The S&P 500 index jumped 16.1% during this time.
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA (Enterprise Value/ Earnings Before Interest Tax Depreciation and Amortization) ratio, which is commonly used for valuing hospital stocks, the industry trades at 8.56X compared with the S&P 500's 13.33X and the sector's 10.54X.
Over the past five years, the industry has traded as high as 9.55X and as low as 5.57X, with a median of 7.81X.
HCA Healthcare: The company offers services through surgery centers, free-standing emergency rooms, physician clinics and urgent care centers. The expansion of its telemedicine business is anticipated to contribute to revenue growth. It is well-positioned for growth, driven by increasing patient volumes and admissions. The Managed Medicare and Medicaid operations are expected to further support top-line growth. HCA's strategic inorganic growth initiatives contribute to scaling its business and it prioritizes enhancing shareholder value through dividend increases and share repurchases.
The Zacks Consensus Estimate for one of the biggest for-profit publicly traded hospitals' 2023 EPS indicates 7.6% year-over-year growth. The consensus mark for 2023 revenues signals a 6.6% increase from a year ago. HCA Healthcare beat earnings estimates twice in the past four quarters and missed on the other occasions, the average surprise being 4.8%. Shares of the company have jumped 13.9% over the past month.
Universal Health Services: The company operates acute care facilities and outpatient and behavioral health care units, with a focus on behavioral indications such as autism, eating disorders, substance use disorder and military disorderliness through its Patriot Support Program. The company experiences momentum from increased patient days and an extensive care network. The expansion of licensed beds in acute care hospitals and strategic joint ventures in the behavioral health portfolio is anticipated to contribute to its growth.
The Zacks Consensus Estimate for Universal Health's 2023 bottom line indicates 4.7% year-over-year growth. The consensus mark for its 2023 revenues signals a 6.2% increase from a year ago. UHS beat earnings estimates in all the past four quarters, the average surprise being 5.5%. Shares of the company have gained 10.8% in the past month.
Tenet Healthcare Corporation: The company offers diversified healthcare services, primarily through general hospitals and related healthcare units. Notably, it experiences growth in the Ambulatory Care and Hospital segments, driven by increasing adjusted patient volumes and emergency room visits. The Ambulatory Care unit is significantly bolstered by robust performance in its USPI division. Prudent buyouts and tuck-in acquisitions contribute to the company's overall success and contractual rate increases in the Conifer unit further enhance its financial performance.
The Zacks Consensus Estimate for THC's 2023 bottom line is pegged at $5.84 per share, which improved 1.9% over the past 60 days. The consensus mark for 2023 revenues signals a 6.4% increase from the prior year. Tenet Healthcare beat earnings estimates in all the past four quarters, the average surprise being 27.8%. Shares of the company have gained 31% over the past month.
Acadia Healthcare: The company delivers behavioral healthcare services in the United States and Puerto Rico. The company's performance is strengthened by improving patient volumes, admissions and the expansion of service lines into new states. ACHC is progressing toward its goal of adding 300 beds by the year-end and aims to open six CTCs in 2023. Active pursuit of joint ventures with reputable healthcare systems underscores the company's commitment to expanding capabilities.
The Zacks Consensus Estimate for ACHC's 2023 bottom line indicates 13.3% year-over-year growth. The consensus mark for 2023 revenues signals an 11.7% increase from a year ago. ACHC beat on earnings thrice in the last four quarters and missed on one occasion, the average surprise being 3.6%. Shares of the company have gained 2.9% in the past month.
Community Health Systems: It is a prominent operator of general acute care hospitals and outpatient facilities throughout the United States. Its positive results are fueled by increasing patient volumes, admissions and improved occupancy rates. With a strategic focus on telehealth, CYH positions itself for long-term growth. The company pursues acquisitions in hospitals where management can enhance value by expanding specialty medical services and achieving economies of scale. Also, it actively engages in divesting non-core assets to bolster profitability, same-store metrics and cash flow.
The Zacks Consensus Estimate for CYH's 2023 bottom line indicates a 34.8% improvement from a year ago. The consensus mark for its 2023 revenues signals 2% growth from the prior year. The earnings estimates remained stable over the past week. Shares of the company have gained 3.7% in the past month.
Why Haven't You Looked at Zacks' Top Stocks?
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights HCA Healthcare, Universal Health Services, Tenet Healthcare, Acadia Healthcare Company and Community Health Systems
For Immediate Release
Chicago, IL – December 13, 2023 – Today, Zacks Equity Research discusses HCA Healthcare Inc. (HCA - Free Report) , Universal Health Services Inc. (UHS - Free Report) , Tenet Healthcare Corp. (THC - Free Report) , Acadia Healthcare Company, Inc. (ACHC - Free Report) and Community Health Systems, Inc. (CYH - Free Report) .
Industry: Hospitals
Link: https://www.zacks.com/commentary/2196626/5-hospital-stocks-to-watch-amid-promising-industry-trends
Technological innovation and digital transformation are poised to confer a competitive edge, boosting efficiency for the Zacks Medical-Hospital industry players. Growing competition in this market remains a common theme. As the COVID-19 impact wanes, M&A and consolidation activities are expected to pick up in the fragmented market.
Medical inflation and workforce challenges are keeping the industry players under pressure. With utilization, expenses are expected to improve for the hospital companies. Companies like HCA Healthcare Inc., Universal Health Services Inc., Tenet Healthcare Corp., Acadia Healthcare Company, Inc. and Community Health Systems, Inc. are expected to benefit from these developments.
Industry Overview
The Zacks Medical-Hospital industry comprises for-profit hospital companies that provide healthcare through different types of hospitals, such as acute care, rehabilitation and psychiatric. These hospital entities are engaged in internal medicine, general surgery, cardiology, oncology, neurosurgery, orthopedics and obstetrics, telehealth services, mental health care and diagnostic and emergency services.
Revenues of these companies depend on inpatient occupancy levels, medical and ancillary services ordered by physicians and provided to patients, and the volume of outpatient procedures. These hospital companies receive payments for patient services from the government under the Medicare program, Medicaid or similar programs, managed care plans (including plans offered through the American Health Benefit Exchanges), private insurers and directly from patients.
4 Key Trends Defining the Hospital Industry's Future
Embracing the Digital Frontier: Hospitals are leveraging ongoing technological advancements to enhance services and drive growth. This shift optimizes operations, reduces costs, enhances convenience and elevates the overall patient experience. The adoption of telehealth and telemedicine, accelerated by the COVID-19 pandemic, is expected to persist in its growth trajectory. Companies are incorporating artificial intelligence (AI) and automation, coupled with real-time analytics, to deliver quality care. AI aids in refining clinical workflow management and medical diagnoses, reducing patient wait times and treatment costs.
Patient Volume Growth: The resurgence of deferred elective procedures in recent quarters, post-pandemic constraints, has propelled patient volumes. Nevertheless, concerns linger for patients due to medical inflation, escalating coverage costs and financial constraints, prompting delays in addressing non-emergency medical needs. The upswing in out-of-pocket costs poses a potential deterrent to patient volume growth.
However, mitigating factors such as the Affordable Care Act (ACA) and comparable safety nets may offer some relief in this challenging scenario. The U.S. Census Bureau's revised report indicates that rapid growth in the 65+ age group, driven by scientific and healthcare advancements, is amplifying demand for hospital services.
Escalating Costs: The upsurge in patient volumes, along with increased prices for hospital supplies and inflationary pressures, is projected to amplify hospitals' operating costs. While workforce challenges show signs of improvement, they persist as a concern. Companies are strategically prioritizing labor productivity enhancements and the integration of new technologies to optimize expenditure. Additionally, leveraging contract renegotiations with suppliers and vendors is identified as a potential catalyst for cost management and operational efficiency.
Resurgence in M&A: Merger-and-acquisition (M&A) activity in hospitals and health systems, having sharply declined during the COVID-19 pandemic, is now witnessing a robust rebound. The fragmented industry is expected to see several deals in the upcoming days. Business consolidation, new tech partnerships and evolving business models can majorly improve hospital companies' profitability. Per a Deloitte report, 86% of surveyed health system executives foresee M&A substantially impacting their 2024 strategic plans.
Zacks Industry Rank Indicates Rosy Outlook
The group's Zacks Industry Rank, which is the average of the Zacks Rank of all member stocks, indicates bright near-term prospects. The Zacks Medical-Hospital industry, which is housed within the broader Zacks Medical sector, currently carries a Zacks Industry Rank #90, which places it in the top 36% of nearly 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry's positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group's earnings growth potential.
Before we present the stocks that you may want to monitor, let's take a look at the industry's recent stock market performance and valuation picture.
Industry Outperforms Sector But Lags S&P 500
The Zacks Medical-Hospital industry has fared better than its broader sector over the past year but lagged the Zacks S&P 500 composite. During this period, the stocks in this industry have gained 5.7% against the Zacks Medical sector's 9.4% decline. The S&P 500 index jumped 16.1% during this time.
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA (Enterprise Value/ Earnings Before Interest Tax Depreciation and Amortization) ratio, which is commonly used for valuing hospital stocks, the industry trades at 8.56X compared with the S&P 500's 13.33X and the sector's 10.54X.
Over the past five years, the industry has traded as high as 9.55X and as low as 5.57X, with a median of 7.81X.
5 Stocks Worth Your Attention
Below, we have presented five stocks with a Zacks Rank #3 (Hold) from the Medical-Hospital industry. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
HCA Healthcare: The company offers services through surgery centers, free-standing emergency rooms, physician clinics and urgent care centers. The expansion of its telemedicine business is anticipated to contribute to revenue growth. It is well-positioned for growth, driven by increasing patient volumes and admissions. The Managed Medicare and Medicaid operations are expected to further support top-line growth. HCA's strategic inorganic growth initiatives contribute to scaling its business and it prioritizes enhancing shareholder value through dividend increases and share repurchases.
The Zacks Consensus Estimate for one of the biggest for-profit publicly traded hospitals' 2023 EPS indicates 7.6% year-over-year growth. The consensus mark for 2023 revenues signals a 6.6% increase from a year ago. HCA Healthcare beat earnings estimates twice in the past four quarters and missed on the other occasions, the average surprise being 4.8%. Shares of the company have jumped 13.9% over the past month.
Universal Health Services: The company operates acute care facilities and outpatient and behavioral health care units, with a focus on behavioral indications such as autism, eating disorders, substance use disorder and military disorderliness through its Patriot Support Program. The company experiences momentum from increased patient days and an extensive care network. The expansion of licensed beds in acute care hospitals and strategic joint ventures in the behavioral health portfolio is anticipated to contribute to its growth.
The Zacks Consensus Estimate for Universal Health's 2023 bottom line indicates 4.7% year-over-year growth. The consensus mark for its 2023 revenues signals a 6.2% increase from a year ago. UHS beat earnings estimates in all the past four quarters, the average surprise being 5.5%. Shares of the company have gained 10.8% in the past month.
Tenet Healthcare Corporation: The company offers diversified healthcare services, primarily through general hospitals and related healthcare units. Notably, it experiences growth in the Ambulatory Care and Hospital segments, driven by increasing adjusted patient volumes and emergency room visits. The Ambulatory Care unit is significantly bolstered by robust performance in its USPI division. Prudent buyouts and tuck-in acquisitions contribute to the company's overall success and contractual rate increases in the Conifer unit further enhance its financial performance.
The Zacks Consensus Estimate for THC's 2023 bottom line is pegged at $5.84 per share, which improved 1.9% over the past 60 days. The consensus mark for 2023 revenues signals a 6.4% increase from the prior year. Tenet Healthcare beat earnings estimates in all the past four quarters, the average surprise being 27.8%. Shares of the company have gained 31% over the past month.
Acadia Healthcare: The company delivers behavioral healthcare services in the United States and Puerto Rico. The company's performance is strengthened by improving patient volumes, admissions and the expansion of service lines into new states. ACHC is progressing toward its goal of adding 300 beds by the year-end and aims to open six CTCs in 2023. Active pursuit of joint ventures with reputable healthcare systems underscores the company's commitment to expanding capabilities.
The Zacks Consensus Estimate for ACHC's 2023 bottom line indicates 13.3% year-over-year growth. The consensus mark for 2023 revenues signals an 11.7% increase from a year ago. ACHC beat on earnings thrice in the last four quarters and missed on one occasion, the average surprise being 3.6%. Shares of the company have gained 2.9% in the past month.
Community Health Systems: It is a prominent operator of general acute care hospitals and outpatient facilities throughout the United States. Its positive results are fueled by increasing patient volumes, admissions and improved occupancy rates. With a strategic focus on telehealth, CYH positions itself for long-term growth. The company pursues acquisitions in hospitals where management can enhance value by expanding specialty medical services and achieving economies of scale. Also, it actively engages in divesting non-core assets to bolster profitability, same-store metrics and cash flow.
The Zacks Consensus Estimate for CYH's 2023 bottom line indicates a 34.8% improvement from a year ago. The consensus mark for its 2023 revenues signals 2% growth from the prior year. The earnings estimates remained stable over the past week. Shares of the company have gained 3.7% in the past month.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.