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Can HCA Holdings Retain its Business Strength in 2017?
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HCA Holdings, Inc. (HCA - Free Report) recently gave a glimpse of its 2016 preliminary results. The company expects income before taxes and adjusted EBITDA of approximately $4.5 billion and $8.2 billion, both up 13% and 3.5% year over year, respectively. The guidance reflects its strong business in 2016.
Coming to the share price performance, the stock returned a 9.45% compared with a loss of 9.73% logged by the Zacks categorized Medical-Hospital industry.
While HCA Holdings gave a strong outlook for its top and bottom lines, details on admission in the fourth quarter were not so appealing. The company expects same facility admissions for the fourth quarter to increase approximately 1.6% like the year-ago quarter. Same facility equivalent admissions, a measure of total inpatient and outpatient admissions, are expected to increase approximately 1.5%, which is lower than an increase of 2.9% in the prior-year quarter.
Also, same facility emergency room (ER) visits are expected to increase approximately 1.6% compared with an increase of 3.6% in the year-ago quarter.
We believe, the weak guidance for volumes was due to several factors including an overall moderation for inpatient services, competition from more freestanding emergency rooms and some Medicare Advantage (MA) plans that classified ER patients as observation.
While the company was able to perform better than the sector in 2016, we are skeptical about the company’s 2017 performance if the ACA is repealed. If the subsidies given to customers on the exchanges are taken back as part of changes to be brought in by the Trump administration, it will result in expensive premiums which might eventually drive them away. This in turn may lead to an increase in uninsured patients for hospitals and result in higher incidence of bad debts.
Other hospitals companies, Universal Health Services, Inc. (UHS - Free Report) , Community Health Systems (CYH - Free Report) and Select Medical Holdings Corporation (SEM - Free Report) are also likely to be impacted if such a change takes place.
We, however, believe that the company will be able to tide over the industry challenges with its vast scale and diversified business mix that provides it a competitive advantage in negotiating contracts and managing reimbursement uncertainty. Though HCA Holdings is likely to experience increased margin pressure due to slower reimbursement growth, it is better equipped to offset these with its scale and business diversity. So we expect the company to see less earnings and cash flow volatility relative to its peers.
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Can HCA Holdings Retain its Business Strength in 2017?
HCA Holdings, Inc. (HCA - Free Report) recently gave a glimpse of its 2016 preliminary results. The company expects income before taxes and adjusted EBITDA of approximately $4.5 billion and $8.2 billion, both up 13% and 3.5% year over year, respectively. The guidance reflects its strong business in 2016.
Coming to the share price performance, the stock returned a 9.45% compared with a loss of 9.73% logged by the Zacks categorized Medical-Hospital industry.
While HCA Holdings gave a strong outlook for its top and bottom lines, details on admission in the fourth quarter were not so appealing. The company expects same facility admissions for the fourth quarter to increase approximately 1.6% like the year-ago quarter. Same facility equivalent admissions, a measure of total inpatient and outpatient admissions, are expected to increase approximately 1.5%, which is lower than an increase of 2.9% in the prior-year quarter.
Also, same facility emergency room (ER) visits are expected to increase approximately 1.6% compared with an increase of 3.6% in the year-ago quarter.
We believe, the weak guidance for volumes was due to several factors including an overall moderation for inpatient services, competition from more freestanding emergency rooms and some Medicare Advantage (MA) plans that classified ER patients as observation.
While the company was able to perform better than the sector in 2016, we are skeptical about the company’s 2017 performance if the ACA is repealed. If the subsidies given to customers on the exchanges are taken back as part of changes to be brought in by the Trump administration, it will result in expensive premiums which might eventually drive them away. This in turn may lead to an increase in uninsured patients for hospitals and result in higher incidence of bad debts.
Other hospitals companies, Universal Health Services, Inc. (UHS - Free Report) , Community Health Systems (CYH - Free Report) and Select Medical Holdings Corporation (SEM - Free Report) are also likely to be impacted if such a change takes place.
We, however, believe that the company will be able to tide over the industry challenges with its vast scale and diversified business mix that provides it a competitive advantage in negotiating contracts and managing reimbursement uncertainty. Though HCA Holdings is likely to experience increased margin pressure due to slower reimbursement growth, it is better equipped to offset these with its scale and business diversity. So we expect the company to see less earnings and cash flow volatility relative to its peers.
HCA carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
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