The biggest healthcare story in the past year is undoubtedly the Covid 19 pandemic. Though certain healthcare stocks have skyrocketed, most hospital stocks haven’t been so lucky.
Non-emergency admissions have tanked throughout the pandemic, which has heavily impacted industry profits. However, with the approval and distribution of the Covid 19 vaccine, the provision of elective services will pick up again.
In March 2020, the Centers for Medicare and Medicaid Services (CMS) put restrictions on elective, non-essential medical, surgical, and dental procedures. The goal was to preserve resources in treating the patients affected by the virus. As a result, the delivery of elective services remained suppressed for most of 2020.
However, certain hospital stocks remained resilient despite the challenges the pandemic posed to their core business. Now with the virus dragging on, there are a few hospital stocks that investors should keep tabs on.
Hospital Stocks To Watch: HCA Healthcare (HCA)
Nashville-based HCA is the largest hospital operator in the U.S. It is currently operating more than 180 hospitals with 2,000 sites of care across 21 states in the U.S. and the UK.
Moreover, its robust financials and free cash flow growth make it arguably the strongest company in its peer group. After a nightmare second quarter, HCA stock is picking up the pace again, posting a 33% gain in the past six months.
HCA’s earnings results are back on track after witnessing a massive 12% drop in revenues in the second quarter. In its most recent quarter, revenues were up 5.7% year-over-year to $14.29 billion, beating estimates by $300 million.
Additionally, net income of $1.4 billion was up 33% year-over-year. The hospital operator forecasts revenues to fall within $53.5 billion to $55.5 billion in 2021. Hence, with continued product diversification, higher in-patient volumes, and expansion into the telemedicine space, things are looking up in 2021.
On top of that, the stock’s forward price-to-sales ratio is lower than the industry average. Hence, it is one of the most undervalued stocks in the sector, given its positioning.
Tenet Healthcare Corp (THC)
Tenet Health Corporation is a diversified healthcare services company providing in-patient, out-patient, and value-based service in the U.S.
The pandemic was incredibly tough on Tenet, with a massive 20% drop in revenues year-over-year in the second quarter. However, with its recent strategic shift towards its low cost and high margin out-patient business, it aims to transform its asset portfolio.
Despite its challenges, THC stock is performed relatively well of late, growing by roughly 60% in the past three months.
In its past couple of quarters, the healthcare provider has posted better-than-expected results. In its fourth quarter, revenues came in at $4.92 billion, growing 2.3% year-over-year, beating estimates by $30 million.
More importantly, GAAP earnings per share of $3.86, beating estimates by a remarkable $1.84. This year’s EPS forecasts are looking impressive so far and are expected to fall between $2.09 to $3.81.
With a focus on its low cost, higher-margin segments, I expect profitability and financial flexibility to improve significantly for Tenet.
Community Health Systems (CYH)
Community Health Systems operates the largest network of acute care hospitals and out-patient facilities in the U.S.
Its facilities are located in more than 18 states, with more than 1,000 physicians and licensed healthcare practitioners offering their services.
The hospital operator has historically suffered because of its debt load but is now making some meaningful changes to enhance its financial flexibility. Despite the pandemic-induced slowdown, CYH stock has performed incredibly, generating 71% returns in the past six months.
Earnings have been understandably patchy, but with its third-quarter earnings beat, it appears that it’s back on track. Revenue in the third quarter improved by 24% on a sequential basis to $3.13 billion. Diluted earnings of 18 cents beat estimates by almost 30 cents.
Moreover, it’s working hard to cut costs to service its debt better through strategic divestitures. Additionally, the healthcare services provider guides that its adjusted EBITDA will surpass its previous guidance of $1.65 billion to 1.80 billion for the full year.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
