With Obamacare Secured, HCA Has Huge Potential

Advertisement

It was close, but not a nail-biter. In a 6-3 decision, the U.S. Supreme Court pretty much said the Affordable Care Act (aka Obamacare) is here to stay.

hsa-holdings-hca-stock-logo-185And HCA Holdings (HCA) took off.

Why? Because it’s the kind of healthcare company that will benefit mightily from the news.

There are certainly plenty of businesses within the healthcare sector that will have much brighter prospects now. Just removing the uncertainty of whether this landmark piece of legislation was going to live or die has been hamstringing healthcare for a while.

The market hates uncertainty and this latest decision brings to rest an enormous amount of uncertainty. That’s one reason so many healthcare stocks popped last week.

Underlying that is the understanding that there are specific firms that are in the sweet spot now that the legislation has been deemed constitutional.

And HCA is one of them. The stock popped 9% on the day the court’s decision was announced. It’s up 24% year to date and more than 64% in the past year. That is certainly a stock with some serious momentum. And even at these levels, HCA stock is trading at a price-to-earnings ratio of 19.

It’s no surprise why. HCA operates 163 hospitals, including 157 general acute care hospitals as well as 110 freestanding surgery centers in 20 states and England. And one of the big winners in Obamacare is going to be the hospitals and surgery centers.

Obamacare Helps HCA’s Profits

One of the goals of ACA is to simplify the way Medicare, Medicaid and to a secondary extent insurers get paid for healthcare services.

Instead of receiving billing from the surgeon, the anesthesiologist, the OR nurses, the hospital, etc., ACA pays out to the hospital or medical center whatever it’s willing to pay for a given procedure — and the hospital doles out the money to all the parties.

This gives hospitals much more flexibility in how and who they pay what. That means they’re in control of pricing. And when companies control their own surgery and acute care centers, the margins get even better.

Earnings have grown 79% in the past year and net income for the most recent quarter is up 70% over the same quarter a year ago. Net operating cash flow is up 130% from last year. That’s just a taste of what’s in store now that ACA really starts rolling.

What’s more, as the healthcare industry transitions to electronic medical records large, well-run hospital firms like HCA will be looking to grow. Converting records is extremely costly and small, independent or non-profit hospitals are having are hard time coming up with the cash it takes to convert their records. The solution — sell the operations to big hospital company like HCA.

The Bottom Line

The Supreme Court’s ruling last week is a big deal for HCA. It now has the green light to grow. And given the amount of growth it has seen in the past year, the fact that HCA has barely tapped its potential — at least in the next couple of years — it is truly exciting.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip GrowthEmerging GrowthUltimate GrowthFamily Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2015/07/with-obamacare-secured-hca-now-has-huge-potential/.

©2024 InvestorPlace Media, LLC