Amid prevailing uncertain economic conditions, the healthcare sector has exhibited remarkable resilience. According to BlackRock, healthcare equities demonstrated 23% less volatility compared to the overall market last year. Long-term tailwinds, including an aging global population, further support demand, regardless of the economic environment.
Given this industry’s resilience and long-term growth prospects, it could be wise to look into fundamentally strong hospital stocks such as HCA Healthcare, Inc. (HCA), Universal Health Services, Inc. (UHS), and Tenet Healthcare Corporation (THC).
As we contend with a potential global recession, the healthcare sector has consistently surpassed broad market performance by an average margin of 10% in the past seven recessions. Furthermore, over the span of the last six recessions, earnings within the industry have experienced an average growth of 21%.
Steady advancements in clinical trials and drug developments are bolstering the demand for hospital services in the long run. On the other hand, the demographics of an aging population and the increasing prevalence of chronic diseases will likely necessitate ongoing medical care and treatment.
Last month, the World Health Organization (WHO) warned that chronic diseases are taking an ‘immense and increasing toll on lives with projections of 86% of the 90 million deaths each year, indicating a 90% from 2019. It also revealed that non-communicable diseases claim nearly three-quarters of all lives lost yearly.
According to Statista, the revenue in the hospital market is projected to reach $4.08 trillion in 2023. In addition, revenue is expected to exhibit a CAGR of 3.6%, resulting in a market volume of $4.70 trillion by 2027.
Moreover, as technological innovations continue to boost the efficiency of companies in this space and generate cost savings, leading industry players like HCA, UHS, and THC are poised to capitalize on these trends.
HCA Healthcare, Inc. (HCA)
HCA is a healthcare services company that owns and operates general and acute care hospitals offering medical, surgical, emergency, and outpatient services. In addition, the company operates in two geographically organized groups: The National and American Groups.
On May 18, HCA entered into an agreement to purchase 41 urgent care centers in Texas from FastMed. On completion, this transaction would expand the company’s urgent care operations significantly within the state and provide a seamless connection to its broader healthcare network for high-quality healthcare services.
On May 8, the company announced more than $300 million in investments to support clinical education and the training of nurses.
This includes more than $200 million towards the expansion of Galen College of Nursing and approximately $136 million towards the opening of new HCA Healthcare Centers for Clinical Advancement. Such investments should aid the company in delivering high-quality patient care and medical services.
HCA’s trailing-12-month EBITDA margin of 20.17% is 527.4% higher than the 3.21% industry average. Its trailing-12-month ROTC and ROTA of 14.38% and 10.88% compare with the negative industry averages of 23.12% and 33.16%, respectively.
For the fiscal first quarter that ended March 31, 2023, HCA’s revenues increased 4.3% year-over-year to $15.59 billion. Its adjusted EBITDA rose 7.7% from the year-ago value to $3.17 billion, while its cash flow from operating activities improved 34.1% year-over-year to $1.80 billion.
In addition, net income attributable to HCA and EPS came in at $1.36 billion and $4.85 per share, up 7.1% and 17.1% year-over-year, respectively.
Analysts expect HCA’s revenue and EPS for the fiscal second quarter (ending June 30, 2023) to increase 5.4% and 0.6% year-over-year to $15.63 billion and $4.23, respectively. Moreover, it surpassed the EPS estimates in three of the trailing four quarters.
The stock has gained 50.6% over the past year to close the last trading session at $279.85.
HCA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Stability and Sentiment and a B for Value and Quality. Among the 11 stocks in B-rated the Medical - Hospitals industry, it is ranked first. Click here to see the other ratings of HCA for Growth and Momentum.
Universal Health Services, Inc. (UHS)
UHS owns and operates acute care hospitals, and outpatient and behavioral health care facilities. It provides services, which include general and specialty surgery, internal medicine, obstetrics, emergency room care, radiology, oncology, diagnostic care, coronary care, pediatric services, pharmacy services, and behavioral health services.
On May 17, the company’s board of directors announced a dividend of $0.20 per share, payable on June 15, 2023. UHS’ annual dividend of $0.80 yields 0.57% at the current price level. Its dividend payouts have increased at a 10.1% CAGR over the past three years and a 14.9% CAGR over the past five years.
In the first quarter that ended March 31, 2023, UHS’ net revenues increased 5.3% year-over-year to $3.47 billion. Its income from operations grew 19.7% from the prior-year quarter to $278.70 million. UHS’ adjusted net income and earnings per share came in at $167.58 million and $2.34, up 2.5% and 8.8% year-over-year, respectively, for the same period.
The consensus EPS estimate of $2.42 for the second quarter (ending June 2023) represents a 10.2% improvement year-over-year. The consensus revenue estimate of $3.50 billion for the ongoing quarter indicates a 5.4% increase from the prior-year period. UHS has a promising earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
In terms of trailing-12-month ROCE and ROTA, UHS’ 11.52% and 5.05% compares to the negative industry averages of 42.68% and 33.16%, respectively. Likewise, its trailing-12-month EBITDA margin of 12.43% is 286.5% higher than the industry average of 3.21%.
Over the past nine months, the stock has gained 39% to close the last trading session at $140.97.
It is no surprise that UHS has an overall rating of B, which translates to Buy in our proprietary rating system. Also, it has a B grade for Value and Sentiment. Within the same industry, it is ranked #5.
Beyond what we’ve stated above, we’ve also rated UHS for Growth, Momentum, Stability, and Quality. Get all UHS ratings here.
Tenet Healthcare Corporation (THC)
THC is a diversified healthcare services company that operates through three segments: Hospital Operations; Ambulatory Care; and Conifer. Its general hospitals offer acute care services, operating and recovery rooms, radiology and respiratory therapy services, clinical laboratories, and pharmacies.
On February 8, United Surgical Partners International (USPI), the largest ambulatory surgery platform in the country and THC subsidiary, and Providence expanded their partnership to increase access to ambulatory surgical services across the United States in response to the growing demand for outpatient services. This development could boost THC’s ambulatory care revenues.
THC’s net operating revenue increased 5.8% year-over-year in the first quarter that ended on March 31, 2023, to $5.02 billion. During the same period, attributable net income to THC common shareholders amounted to $143 million, representing a 2.1% increase from the prior-year quarter. Also, its EPS from continuing operations stood at $1.32, up 3.9% year-over-year.
Analysts expect THC’s revenue for the second quarter (ending June 30, 2023) to increase 5.8% year-over-year to $4.91 billion, while its EPS is expected to be $1.24 in the same period. Additionally, it surpassed the EPS estimates in each of the trailing four quarters, which is excellent.
The stock’s trailing-12-month EBITDA margin of 18.12% is 463.8% higher than the 3.21% industry average. Also, its trailing-12-month ROTC and ROTA of 8.65% and 1.53% compare to the negative industry averages of 23.12% and 33.16%, respectively.
THC’s shares have gained 64.4% over the past six months and 54.9% year-to-date to close the last trading session at $75.57.
THC’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It also has a B grade for Growth and Value. In the same industry, it is ranked #2 out of 11 stocks. Click here to see the other ratings of THC for Momentum, Stability, Sentiment, and Quality.
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HCA shares were trading at $287.53 per share on Wednesday afternoon, up $7.68 (+2.74%). Year-to-date, HCA has gained 20.12%, versus a 14.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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