HCA Healthcare, Inc. HCA has been suffering for a while now as the coronavirus pandemic escalated worldwide. The coronavirus outbreak required hospitals to keep their elective procedures on hold to accommodate any potential surge in COVID-19 infected admissions. The company might also take a hit from adopting expensive procedures and bearing unexpected costs to ensure coronavirus treatment.
Consequently, shares of this Zacks Rank #3 (Hold) company have lost 39.3%, slightly wider than its industry's decline of 38.6% year to date.
Cancellation in elective surgeries will hurt the company’s revenues.
Moreover, it is feared that the pandemic may cause recession. Such a depressive economic scenario may induce job cuts, indicating less number of people to be brought under private insurance coverage while more members to be insured by Government health schemes, namely Medicare and Medicaid.
Since profitability of the government-sponsored health insurance plans is lower than those under employer-sponsored plans, margins of the hospitals are likely to be dented. Higher number of individuals without sufficient health insurance coverage might also cause bad debts for hospitals from unpaid medical bills.
Credit rating agency Moody’s also confirmed that if the outbreak continues, then hospitals might have to endure higher expenses for hiring contract workers to handle the emerging need for urgent care, which in turn, can weigh on the margins simultaneously.
Moreover, the company has been witnessing escalating expenses from the past many years due to higher salaries and benefits, supplies plus other operating costs. Going forward too, the company is expected to witness flared-up costs on account of its constant growth-related investments.
Long-term debt has been mounting since 2011, creating a financial risk for the company. Moreover, its leverage ratio (total debt to capital) of 102% is higher than the industry average of 97.5%.
Negative Estimate Revision and Weak ROE
The Zacks Consensus Estimate for current-year earnings has been revised 2.1% downward in the past 30 days to $11.46.
Further, HCA Healthcare’s trailing 12-month return on equity (ROE) of -242% is against its industry average of 678.5%. The figure reflects a decline since 2015 and also undermines the company’s growth potential.
Stocks to Consider
Investors interested in the medical sector can take a look at some better-ranked stocks like The Ensign Group, Inc. ENSG, Genesis Healthcare, Inc. and Community Health Systems, Inc. CYH. While Ensign Group and Genesis sport a Zacks Rank #1 (Strong Buy), Community Health carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Earnings of Ensign Group, Genesis and Community Health surpassed estimates in three of the last four quarters, missing the same in one, the positive surprise being 15.73%, 2.3%, 109.7% and 54.9%, respectively, on average.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>