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Should You Buy, Hold or Sell HCA Healthcare Stock After Q3 Earnings?
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HCA Healthcare, Inc. (HCA - Free Report) recently reported strong third-quarter 2024 earnings, driven by improving admissions, same-facility emergency room visits, and inpatient surgeries. Despite declining outpatient surgery cases and the impact of Hurricane Helene and Milton, HCA maintained its 2024 guidance, implying strength in its business model to navigate challenges. Now that its latest earnings are out, investors are contemplating whether to increase their stake or hold tight to their current investments.
Let's answer that question by assessing HCA’s latest quarterly results, updated outlook, and its long-term growth prospects.
A Sneak Peek Into Q3 Results
HCA Healthcare reported third-quarter 2024 adjusted earnings per share (EPS) of $5.05, which beat the Zacks Consensus Estimate by 1.6%. The bottom line improved 29.2% year over year. Revenues amounted to $17.5 billion, which improved 7.9% year over year in the quarter under review. However, the top line missed the consensus mark by a whisker. These results underscore a robust performance across most of the segments. For a detailed analysis, please read our blog on third-quarter earnings: HCA Healthcare Beats on Q3 Earnings, Reaffirms 2024 EPS View.
Impact of Hurricanes and Mitigation Strategies
Hurricanes Helene and Milton significantly impacted HCA's operations in the third quarter of 2024. Hurricane Helene had an impact of $50 million or 15 cents per diluted share in the quarter. HCA expects the combined impact of both hurricanes to be between $200 and $300 million or 60-90 cents per diluted share in the fourth quarter.
Despite these challenges, HCA expects its Florida hospital to be operational by 2024-end. HCA’s systematic approach to preparedness in disasters are helping it navigate the recent hurricanes. Despite the recurrence of hurricanes in the Southern states, HCA will not shy away from expanding its footprint and providing top-notch quality healthcare services.
HCA’s Outlook
Despite these obstacles, HCA reaffirmed its 2024 guidance but expects all the metrics to come in the lower half of the ranges.
HCA expects volumes in 2025 to grow in the range of 3-4%, exceeding its long term range of 2-3%. Moreover, it expects adjusted EBITDA and diluted earnings per share growth in 2025 to be near or a bit above the upper end of its long-term growth range of 4-6% and 8-12%, respectively.
Long-Term Growth Prospects
Growing volumes is an important determinant for a healthcare facility operator like HCA Healthcare. Strong demand for emergency care, steady growth in cardiac services, and overall expansion across key markets will aid the results. The company saw a 5.8% year-over-year increase in admissions during the first nine months of 2024. Expected strong demand in the coming days poises the company’s top line well for growth. Stable pricing and reimbursements bode well for its commercial business.
The company is effectively meeting growing demand by expanding capacity and enhancing efficiency, excelling on both fronts. Growing inpatient beds and outpatient facilities are expected to help the company meet the increasing volumes. By the end of 2024, it plans to add 600 inpatient beds and 100 outpatient facilities, bringing total sites to over 2,600.
Another aspect of margin improvement HCA is focusing on is artificial intelligence (AI). It can be used for staffing, scheduling, revenue cycle management etc. Although the company is still in the early stages of implementing AI, it expects the technology component of its capital expenditures to continue growing.
Investors have demonstrated their confidence in the company’s prospects as seen in HCA stock’s price performance over the year-to-date period. Its shares have gained 33.2% in the year-to-date period, outperforming the hospital industry and the S&P 500 Index. Over this time frame, the industry and the S&P 500 Index have gained 33% and 22.5%, respectively.
HCA YTD Price Performance
Image Source: Zacks Investment Research
Optimistic Analyst Sentiment for HCA
Reflecting the positive sentiment around HCA Healthcare, the Zacks Consensus Estimate for earnings per share has seen upward revisions. The consensus estimate for 2024 adjusted EPS for HCA is currently pegged at $22.42, indicating 17.9% year-over-year growth. The consensus mark for 2025 EPS suggests a further 11.3% jump year over year.
Image Source: Zacks Investment Research
The company beat earnings estimates in each of the past four quarters, with an average surprise of 9%. The consensus estimate for 2024 and 2025 revenues suggests 8.9% and 5.4% year-over-year growth, respectively.
HCA’s Valuation
From a valuation perspective, HCA appears marginally expensive. The company is trading at a forward 12-month price-to-earnings multiple of 14.69X, a bit higher than the industry average of 14X.
Image Source: Zacks Investment Research
In comparison, its peers like Tenet Healthcare Corporation (THC - Free Report) and Universal Health Services, Inc. (UHS - Free Report) are currently trading at forward 12-month price-to-earnings of 14.8X and 11.88X, respectively.
Conclusion
HCA Healthcare’s third-quarter results highlight both its strengths and obstacles for investors to consider. While the company’s earnings beat estimates, the impact of the two hurricanes raises concern. Volume growth, expansion initiatives, and a focus on technology highlight a positive long-term outlook.
However, its premium valuation compared to the industry and ongoing challenges may limit its short-term potential. For long-term investors, HCA’s strong fundamentals may justify holding the stock, but potential investors might remain cautious of the stock’s high price amid hurricane impacts.
Image: Bigstock
Should You Buy, Hold or Sell HCA Healthcare Stock After Q3 Earnings?
HCA Healthcare, Inc. (HCA - Free Report) recently reported strong third-quarter 2024 earnings, driven by improving admissions, same-facility emergency room visits, and inpatient surgeries. Despite declining outpatient surgery cases and the impact of Hurricane Helene and Milton, HCA maintained its 2024 guidance, implying strength in its business model to navigate challenges. Now that its latest earnings are out, investors are contemplating whether to increase their stake or hold tight to their current investments.
Let's answer that question by assessing HCA’s latest quarterly results, updated outlook, and its long-term growth prospects.
A Sneak Peek Into Q3 Results
HCA Healthcare reported third-quarter 2024 adjusted earnings per share (EPS) of $5.05, which beat the Zacks Consensus Estimate by 1.6%. The bottom line improved 29.2% year over year. Revenues amounted to $17.5 billion, which improved 7.9% year over year in the quarter under review. However, the top line missed the consensus mark by a whisker. These results underscore a robust performance across most of the segments. For a detailed analysis, please read our blog on third-quarter earnings: HCA Healthcare Beats on Q3 Earnings, Reaffirms 2024 EPS View.
Impact of Hurricanes and Mitigation Strategies
Hurricanes Helene and Milton significantly impacted HCA's operations in the third quarter of 2024. Hurricane Helene had an impact of $50 million or 15 cents per diluted share in the quarter. HCA expects the combined impact of both hurricanes to be between $200 and $300 million or 60-90 cents per diluted share in the fourth quarter.
Despite these challenges, HCA expects its Florida hospital to be operational by 2024-end. HCA’s systematic approach to preparedness in disasters are helping it navigate the recent hurricanes. Despite the recurrence of hurricanes in the Southern states, HCA will not shy away from expanding its footprint and providing top-notch quality healthcare services.
HCA’s Outlook
Despite these obstacles, HCA reaffirmed its 2024 guidance but expects all the metrics to come in the lower half of the ranges.
HCA expects volumes in 2025 to grow in the range of 3-4%, exceeding its long term range of 2-3%. Moreover, it expects adjusted EBITDA and diluted earnings per share growth in 2025 to be near or a bit above the upper end of its long-term growth range of 4-6% and 8-12%, respectively.
Long-Term Growth Prospects
Growing volumes is an important determinant for a healthcare facility operator like HCA Healthcare. Strong demand for emergency care, steady growth in cardiac services, and overall expansion across key markets will aid the results. The company saw a 5.8% year-over-year increase in admissions during the first nine months of 2024. Expected strong demand in the coming days poises the company’s top line well for growth. Stable pricing and reimbursements bode well for its commercial business.
The company is effectively meeting growing demand by expanding capacity and enhancing efficiency, excelling on both fronts. Growing inpatient beds and outpatient facilities are expected to help the company meet the increasing volumes. By the end of 2024, it plans to add 600 inpatient beds and 100 outpatient facilities, bringing total sites to over 2,600.
Another aspect of margin improvement HCA is focusing on is artificial intelligence (AI). It can be used for staffing, scheduling, revenue cycle management etc. Although the company is still in the early stages of implementing AI, it expects the technology component of its capital expenditures to continue growing.
Investors have demonstrated their confidence in the company’s prospects as seen in HCA stock’s price performance over the year-to-date period. Its shares have gained 33.2% in the year-to-date period, outperforming the hospital industry and the S&P 500 Index. Over this time frame, the industry and the S&P 500 Index have gained 33% and 22.5%, respectively.
HCA YTD Price Performance
Image Source: Zacks Investment Research
Optimistic Analyst Sentiment for HCA
Reflecting the positive sentiment around HCA Healthcare, the Zacks Consensus Estimate for earnings per share has seen upward revisions. The consensus estimate for 2024 adjusted EPS for HCA is currently pegged at $22.42, indicating 17.9% year-over-year growth. The consensus mark for 2025 EPS suggests a further 11.3% jump year over year.
Image Source: Zacks Investment Research
The company beat earnings estimates in each of the past four quarters, with an average surprise of 9%. The consensus estimate for 2024 and 2025 revenues suggests 8.9% and 5.4% year-over-year growth, respectively.
HCA’s Valuation
From a valuation perspective, HCA appears marginally expensive. The company is trading at a forward 12-month price-to-earnings multiple of 14.69X, a bit higher than the industry average of 14X.
Image Source: Zacks Investment Research
In comparison, its peers like Tenet Healthcare Corporation (THC - Free Report) and Universal Health Services, Inc. (UHS - Free Report) are currently trading at forward 12-month price-to-earnings of 14.8X and 11.88X, respectively.
Conclusion
HCA Healthcare’s third-quarter results highlight both its strengths and obstacles for investors to consider. While the company’s earnings beat estimates, the impact of the two hurricanes raises concern. Volume growth, expansion initiatives, and a focus on technology highlight a positive long-term outlook.
However, its premium valuation compared to the industry and ongoing challenges may limit its short-term potential. For long-term investors, HCA’s strong fundamentals may justify holding the stock, but potential investors might remain cautious of the stock’s high price amid hurricane impacts.
HCA Healthcare currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.