HCA Holdings: Healthcare ‘Blue Chip’ With a Rosy Future

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There’s an old saying on Wall Street: Don’t bet against the consumer. A similar axiom seems to apply these days: Don’t bet against healthcare.

hsa-holdings-hca-stock-logo-185A recent report from the PricewaterhouseCoopers (PwC) Health Research Institute (HRI) predicts that the healthcare industry in the U.S., which generated $2.8 trillion in revenue last year, will post year-over-year growth of 6.8% in 2015.

A major beneficiary of this growth trend is HCA Holdings Inc (NYSE:HCA), which reported better-than-expected earnings this morning before the market’s opening bell.

Based in Nashville, Tennessee, HCA is a holding company whose affiliates own and operate 165 hospitals and 115 freestanding surgery facilities in the U.S. and United Kingdom. As the biggest for-profit U.S. hospital chain by patient volume, HCA is poised to reap the lion’s share of the spoils from the expansion of Obamacare and the growing demand for healthcare from an aging population.

The HRI report pinpoints four trends that are driving healthcare sector expansion: The economic recovery; the growing development and use of high-margin specialty drugs; the increasing acquisition by hospital chains of physician practices, which allows chains to charge higher hospital-level rates; and investments in information technology, such as electronic medical records (EMRs).

With a market cap of $30 billion, HCA Holdings has the financial wherewithal and market clout to leverage these trends. The company is aggressively buying physician practices; it’s enjoying growing patient volume because of the improving economy; and it’s plowing major capital investments into sophisticated patient tracking and document storage systems that make its sprawling network more efficient.

Indeed, the federal government mandates the implementation of EMRs, an initially costly proposition that entails large upfront capital expenditures that eventually translate into cost efficiencies and better quality care.

As individual hospitals, large-scale chains and physician practices grapple with the costs and complexities of EMRs, the deep-pocketed HCA is already in the forefront of EMR implementation and is able to use the technology to boost margins and streamline its holdings.

HCA: Operational Vigor

Judging by its latest operating results, HCA stock is a great play on the long-term bonanza in healthcare demand.

Before the markets opened this morning, HCA reported fourth-quarter earnings of $527 million, up from $424 million in the same quarter a year ago. Earnings per share reached $1.19, compared with 92 cents in the same period a year ago.

Adjusted for one-time gains and costs, EPS was $1.33 in the quarter, beating Wall Street expectations of adjusted EPS of $1.30. Revenue in the quarter came in just over analysts’ estimates of $9.6 billion. For the full year, HCA reported earnings of nearly $1.9 billion and revenue of $36.9 billion. EPS for the full year was $4.16.

Management gave guidance for full-year EPS in the range of $4.55 to $4.95 and revenue in the range of $38.5 billion to $39.5 billion. HCA stock has risen 40% over the last 12 months and has plenty of vigor left.

The Bottom Line

The healthcare sector permeates all aspects of our lives and has grown into a financial juggernaut. Spending on medical care will continue to rise into the foreseeable future, regardless of cost containment efforts. The American population is getting grayer, sicker and increasingly insured — a healthy context for HCA earnings growth.

As HCA Holdings continues to cement its lock on healthcare and Obamacare becomes more entrenched, HCA stock should outperform in 2015.

As of this writing, John Persinos did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/02/hca-holdings-healthcare-blue-chip-rosy-future/.

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