Yahoo News Should HCA Holdings (HCA) Stock Be in Your Portfolio Now?
HCA Holdings Inc. HCA stock has gained 8.12% in the last one year, outperforming the Zacks categorized Medical-Hospitals industry, which registered an increase of only 1.26%. In spite of the uncertainty in the medical sector due to the replacement of Obamacare by the new American Healthcare Act (AHCA), the stock continues to outperform owing to a number of tailwinds.
The company’s underwriting results are impressive. Its fourth-quarter 2016 adjusted earnings of $1.89 per share not only surpassed the Zacks Consensus Estimate by 6.2% but also grew 11.8% year over year on higher revenues. For 2017, the company expects adjusted EBITDA of $8.4–$8.7 billion compared with $8.2 billion in 2016.
The company has been witnessing consistent growth in revenues since 2010. Revenues continued to increase and registered 4.6% year-over-year growth of 2016. This year, the company expects revenues in the range of $43– $44 billion as against $41.5 billion in 2016.
HCA Holdings’ revenue growth has largely been supported by its strategic investments, accretive acquisitions and diversified product lines. For 2017, the company intends to invest nearly $2.9 billion to drive top-line growth. Since 2011, the company has been aggressively taking up inorganic growth initiatives. During 2016, it spent nearly $500 million to acquire certain companies and assets. It also committed capital worth $650 million to the East Florida division to support the growing demand in this market. In addition, the company’s scale and diversified business mix provide it a competitive advantage in negotiating contracts and managing reimbursement uncertainty.
The company also enjoys substantial liquidity on the back of its solid cash position. This helps it make acquisitions as well as undertake several capital deployment activities to enhance shareholders’ wealth. The company generated $5.65 billion of cash flow from operating activities in 2016, up 19.4% year over year.
However, HCA Holdings has been witnessing a rise in its financial leverage since 2013. Despite taking up several bad debt improvement initiatives, the company’s long-term debt increased 3.4% to $31.2 million in 2016. This in turn increased the company’s interest expenses by 2.5% at the end of 2016, limiting bottom-line growth.
The surprise victory of Donald Trump as the 45th U.S. President and the subsequent introduction of AHCA replacing Obamacare has raised concerns for companies from this space and HCA Holdings is no exception. Obamacare had substantially boosted membership growth for health insurers and hence, its replacement by the new Republican health draft will lead to the discontinuation of the Affordable Care Act’s Medicaid expansion. This is expected to increase the number of uninsured Americans, plunging the entire medical sector into uncertainty.
Zacks Rank and Stocks to Consider
HCA Holdings carries a Zacks Rank #2 (Buy). Other well-ranked stocks from the medical sector include UnitedHealth Group Incorporated UNH, Inogen Inc. INGN and Avinger, Inc. AVGR. While Inogen sports a Zacks Rank #1 (Strong Buy), the other two companies hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Inogen posted positive surprises in three of the last four quarters with an average positive surprise of 49.08%.
UnitedHealth delivered positive surprises in the trailing four quarters with an average beat of 3.8%.
Avinger delivered positive surprises in two of the last four quarters with an average beat of 4.35%.
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