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About HCA Healthcare
It feels sort of strange thinking of a hospital as being a place of business, at least initially, am I right?
I mean, the first few things that come to my mind when thinking about a hospital is its role in taking in and taking care of patients, regardless of what their case(s) or ailment(s) may be.
However, when you dig a bit deeper and consider the scale of operations, procedures, logistics and other associated aspects of simply running a single hospital, it is no wonder that one of the world’s most dominant hospital system companies, Nashville, Tennessee-headquartered HCA Healthcare has scaled so well since its founding in 1968, as healthcare, in all shapes and forms, can be quite expensive and subsequently, for companies such as HCA, profitable .
Sure, we could go on a bit about our opinions regarding healthcare and the current system within the United States, but we are not going to fall into that trap.
Instead, we will mention that on an objective, singular level, a hospital essentially provides goods and services that are typically meant to help patients leave the hospital in far better condition than when they arrived in the first place.
However, a hospital can’t just push some buttons and make each patient feel better within the first few minutes of meeting with a physician.
Like any other business, companies (a hospital system, in this scenario) hires doctors, nurses, specialists and so many other crucial agents to keep the operation as safe and efficient as possible, and, of course, said hospital system needs to some sort of profit in order to pay for the aforementioned employees’ services, not to mention pay for the expensive equipment, machines and other units that these folks use day in and day out.
Whether it is through a public or private insurance provider or out of one’s pocket, it can be seen that hospitals, right or wrong, depending on each individual’s perspective(s) on the matter, need to make some sort of profit in order to simply keep its doors open and serving the community and those within.
The main ways in which hospitals and hospital systems make money include (but are definitely not limited to) operations (surgeries as just one of many possible examples, as they tend to be quite lucrative for hospital systems), advanced treatment(s), testing and more than likely rather lucrative contracts between the system and/or individual hospital and insurers and other entities, perhaps, such as the United States government.
HCA Healthcare is like any other company like McDonald’s, in that it has a few different revenue streams, including some that tend to be easily forgotten.
It can really be compared to McDonald’s in the sense that the hospital system generates revenue not only through its variety of patient services, but also through the ground on which these hospitals are built on; the real estate.
And HCA has a lot in terms of real estate.
To name a few locations in Texas alone, HCA maintains (as of this writing, at least) three major hospital units in and around metropolitan Austin, Texas, many also scattered in and around Houston, Texas, Dallas, Texas and San Antonio, Texas, as well, not to neglect the various other locations it has in states and regions such as California, Virginia, Tennessee, Kansas, Indiana, Utah, Las Vegas and even Alaska and the United Kingdom, among others.
At the end of the day, HCA Healthcare is a publicly traded hospital system and while there is a lot to be said about the potential conflicts of interest surrounding this being the case, we will save that for another time and instead get into what we do best; analyze companies and their stocks.
HCA’s stock financials
Trading at a share price of just a hair under $296 with a prevailing price-to-earnings (P/E) ratio of 14.77 along with a market capitalization of $81.22 billion and an annually distributed dividend of $2.40, HCA Healthcare, from an objective investor’s perspective is off to a very good start, as its price-to-earnings ratio indicates that its current share price (NYSE: HCA) is trading below that of what it is actually worth at the moment, or, in layman’s terms, its stock is undervalued.
Additionally, we will hardly ever scoff at a company that dishes out an annual dividend of nearly two dollars and two quarters.
Really, it’s largely a matter of whether or not a company can actually sustain and afford to issue said dividend, which we will likely figure out throughout the course of this stock analysis article.
Diving a bit deeper into HCA Healthcare and the health of its financials, HCA’s executive team, according to its balance sheet, is in charge of approximately $52.4 billion in terms of total assets as well as around $55.2 billion in terms of total liabilities, which, at face value is sort of scary given that an established company and leader within its space such as HCA has more in total liabilities than it does in total assets, however, when you simply consider the fact that this company has an extensive real estate portfolio, any doubts or concerns regarding the overall structure of the company’s balance sheet can be allayed as real estate tends to be a long-term game and given HCA’s track record and global portfolio of hospital and supplemental surgical complexes, it appears as though this company is in it for the long haul, not to mention that there is a high likelihood that an established enterprise such as HCA can hew down its debt(s) over the long run.
However, we must keep the assumptions at a minimum and make sure this company can properly cut down on its outstanding debt(s) and other liabilities over time.
Let’s continue exploring HCA Healthcare.
With respect to the company’s income statement, HCA’s total annual revenues since 2018 have been steadily growing, which makes sense given the onset of COVID-19 and its related variants and the overall rise in concern for individual health and well being.
In getting a bit more specific with the company’s actual financial figures, HCA’s total annual revenues in 2018 stood at just about $46.7 billion, incrementally climbing each year to its latest reported figure (displayed on TD Ameritrade’s platform) of just north of $60 billion in 2022.
It would feel sort of strange to say that this rise in total annual revenues was and is a good thing, as it would heavily insinuate that the more people that have to go to the hospital, the better, however, from a strict, objective numbers standpoint, it is a positive to see HCA’s total annual revenues trending upwards in recent years, and through these revenues, helping more and more people across the globe.
Cash flow time.
As it relates to the company’s displayed cash flow statement, HCA Healthcare’s net income and total cash from operations figures are quite literally sensational, as also since 2018 the company has been both consistent and positive on these fronts, implying that turning a profit isn’t exactly one of this company’s sore spots.
HCA’s stock fundamentals
Speaking of HCA’s profit, according to TD Ameritrade’s platform, its trailing twelve month (TTM) net profit margin stands at 11.35% to the industry’s listed respective average of 3.32%, which checks out given our previous statement(s) regarding its cash flows.
Primarily, HCA’s TTM net profit margin isn’t merely competitive with that of the industry’s average, but rather it is dominant and displays the system’s marked prowess in comparison with its peers.
It seems as though HCA and its executives have done a more than solid job in weeding out the more lucrative healthcare practices and procedures and has thus separated itself from the competition (on average) in, of course, a favorable fashion with respect to its aforementioned TTM net profit margin.
Moving right along to the company’s TTM returns on its assets and investments, HCA’s are also substantially stronger than that of the industry’s listed averages on TD Ameritrade’s platform.
For instance, the company’s TTM return on investment is listed as 17.68% to the industry’s respective average of 3.01%.
Among other positives, this also implies that HCA has done a great job at selecting where it should invest, both with respect to healthcare products and offerings but also real estate as well.
Should you buy HCA stock?
To us, this is one of the few, somewhat rare instances in which each individual investor might want to consider the ethical and/or moral implications of investing in a company.
Nope, we’re still not going to divulge our own views on the matter (not right now, at least) as we urge our viewers to think for themselves.
However, there are arguments that can be made on both sides of the aisle, one of which could include that hospitals and hospital systems profit off of people being sick and therefore incentives might not be fully, favorably aligned while others might contend that said hospitals and systems help patients each and every day and if they profit off of this help, so be it.
Healthcare in general is just complex.
Regardless of one’s views, HCA Healthcare is objectively a behemoth of a hospital system and really, a real estate empire, in many respects.
The company’s balance sheet is in good shape, all things considered, its valuation is in a good place at the moment, its total annual revenues in recent years have been gradually rising, its profitability and asset and investment returns and with that, its cash flows, are frankly fantastic and we see many future catalysts for this company in terms of continuing to grow its geographical footprint.
Given the recession proof nature of this business and its leadership position, and, of course, all of the previously mentioned reasons, we feel it is worth giving this company’s stock (NYSE: HCA) a “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.