HCA Healthcare, Inc. (HCA - Free Report) has been suffering a setback due to high financial leverage and coronavirus-induced business loss.
Over the past 60 days, the company has witnessed its 2020 and 2021 earnings estimates move 10.9% and 2.9% south, respectively, reflecting pessimism around the stock.
Its return on equity stands at -304.8% against its industry's average of 453.9%.
Moreover, on Jun 23, the Federal court verdict upheld The U.S. Department of Health and Human Services’ (HHS) plan on Improving Price and Quality Transparency in American Healthcare, which went against the American Hospital Association (AHA).
The essence of the ruling is to disclose publicly the prices negotiated between hospitals and insurers to promote competition and reduce costs. This, in turn, will be a drawback for leading hospital companies, namely HCA Healthcare, Tenet Healthcare Corp. (THC - Free Report) , Universal Health Services, Inc. (UHS - Free Report) and Community Health Systems Inc. (CYH - Free Report) .
The company witnessed a fall in revenues since the middle of March as the pandemic required hospitals to halt their elective procedures for accommodating any potential spike in COVID-19-infected cases.
Cancellation in elective surgeries to make room for coronavirus-infected patients is hurting the company’s revenues. On its last earnings call, management stated that the company witnessed a respective year-over-year 30% and 50% decline in its in-patient admissions and emergency room visits through April. Its hospital-based outpatient surgeries also saw a 70% plunge from the prior-year quarter.
The company might have also seen a surge in expenses to cater to the COVID-19 infected patients.
It even withdrew its 2020 outlook and suspended its dividend and share buyback program due to the current economic environment.
These apart, the company has been bearing exorbitant expenses for the past many years due to rising salaries and benefits, supplies plus other operating costs. In 2019 and during the first three months of 2020, the same rose 10.2% and 6.8% each, year over year.
Its long-term debt has been increasing since 2011, inducing a financial risk for the company. Moreover, its leverage (total debt to capital) of 102.1% is higher than the industry average of 97.7%. The company’s interest expense has also been rising over the last several quarters. As of Mar 31, 2020, its time interest earned stood at 3.6X, declining from 3.9X at the end of 2019. The company's high debt and low interest payment capacity raises financial risk.
The company's 2020 earnings estimate stands at $4.89 while the same for current-year revenues is pegged at $47.38 billion, implying a respective downside of 53.4% and 7.7% from the year-ago reported figures.
Shares of this presently Zacks Rank #4 (Sell) company have lost 27.8%, narrower than its industry’s decline of 29.5%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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