Over the last six months, HCA Healthcare shares have sunk to $342.40, producing a disappointing 15.8% loss - worse than the S&P 500’s 1.4% drop. This may have investors wondering how to approach the situation.
Given the weaker price action, is now an opportune time to buy HCA? Find out in our full research report, it’s free.
Why Is HCA Healthcare a Good Business?
With roots dating back to 1968 and a network spanning 20 states, HCA Healthcare (NYSE: HCA) operates a network of 190 hospitals and 150+ outpatient facilities providing a full range of medical services across the US and England.
1. Economies of Scale Give It Negotiating Leverage with Suppliers
Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.
With $70.6 billion in revenue over the past 12 months, HCA Healthcare is one of the most scaled enterprises in healthcare. This is particularly important because hospital chains companies are volume-driven businesses due to their low margins.
2. Outstanding Long-Term EPS Growth
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
HCA Healthcare’s EPS grew at an astounding 15.9% compounded annual growth rate over the last five years, higher than its 6.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
3. Stellar ROIC Showcases Lucrative Growth Opportunities
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
HCA Healthcare’s five-year average ROIC was 29.3%, placing it among the best healthcare companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.
Final Judgment
These are just a few reasons why we're bullish on HCA Healthcare. After the recent drawdown, the stock trades at 13.9× forward price-to-earnings (or $342.40 per share). Is now a good time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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