Hospital Market Sneezing, But These 3 Stocks Avoiding the Cold

The Zacks Medical-Hospital industry is battling multiple headwinds, from rising labor and supply costs to workforce burnout, regulatory hurdles and tighter funding. Cybersecurity threats further strain operations, though technology-driven innovations promise future efficiencies. While near-term pressures persist, recovering patient volumes may drive a slow but steady rebound. Consolidation through mergers and acquisitions remains vital, helping hospitals boost scale and strengthen market presence in a fragmented sector. Industry leaders HCA Healthcare, Inc. HCA, Universal Health Services, Inc. UHS and Community Health Systems, Inc. CYH continue to show resilience, streamlining operations and expanding strategically amid an increasingly complex healthcare landscape.

Industry Overview

The Zacks Medical-Hospital industry comprises for-profit hospital companies that provide healthcare through different types of hospitals, such as acute care, rehabilitation and psychiatric. These hospital entities are engaged in internal medicine, general surgery, cardiology, oncology, neurosurgery, orthopedics and obstetrics, telehealth services, mental health care and diagnostic and emergency services. Revenues of these companies depend on inpatient occupancy levels, medical and ancillary services ordered by physicians and provided to patients, and the volume of outpatient procedures. These hospital companies receive payments for patient services from the government under the Medicare program, Medicaid, or similar programs, managed care plans (including plans offered through the American Health Benefit Exchanges), private insurers and directly from patients.

4 Key Trends to Watch in the Hospital Industry

Rising Demand, Shifting Care: Elective procedures are rebounding, driving higher patient volumes across hospitals. The U.S. Census Bureau projects the 65+ population will rise from 56.1 million in 2020 to 73.1 million by 2030, fueling greater healthcare demand. CMS forecasts national health spending to reach $5.6 trillion in 2025 and $8.6 trillion by 2033, per the Peterson-KFF Health System Tracker. Yet, rapid technological advances are accelerating a move away from inpatient care toward outpatient, ambulatory and home-based services, leaving many hospitals with excess capacity and mounting fixed-cost challenges.

Battling Costs Amid Reimbursement Pressures: Hospitals face relentless margin pressure from labor shortages, rising wages, supply chain disruptions and escalating benefit costs. Newly imposed tariffs on imported medical devices are set to inflate expenses further. In response, providers are adopting automation, optimizing staffing models and renegotiating supplier contracts to control costs. Efforts to curb dependence on contract labor are advancing, though burnout remains widespread. Meanwhile, cybersecurity risks are driving up insurance premiums, compounding financial strain. The new $50 billion federal fund aims to aid rural and underserved hospitals, yet experts warn it may not bridge persistent Medicaid reimbursement shortfalls.

Tech-Driven Care Takes Center Stage: Hospitals are rapidly advancing AI, automation and real-time analytics to boost efficiency and streamline operations. These innovations enhance clinical outcomes, improve patient engagement and deliver sustainable cost savings. Meanwhile, telehealth, firmly established during the pandemic, remains essential for expanding access to remote and underserved communities.

Mergers and Partnerships Reshape the Market: Post-pandemic M&A activity is surging as hospitals pursue scale, efficiency and financial stability. In a still-fragmented industry, consolidation is fueled by economic recovery, clearer regulations and shifting care models. Smaller, struggling facilities are likely to be acquired by stronger systems, while strategic alliances, tech-driven collaborations and innovative delivery approaches help hospitals expand capacity and strengthen their competitive position.

Zacks Industry Rank is Not Promising

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all member stocks, signals challenging near-term prospects. The Zacks Medical-Hospital industry, which is housed within the broader Zacks Medical sector, currently carries a Zacks Industry Rank #201, which places it in the bottom 17% of more than 240 Zacks industries.Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.

The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are becoming pessimistic about this group’s earnings growth potential. As a matter of fact, the industry’s earnings estimates for 2025 have gone down 1.1% since July-end.

Despite the dull near-term prospects of the industry, we will present a few stocks that you may want to watch. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.

Industry Lags S&P 500 But Outperforms Sector

The Zacks Medical-Hospital industry has underperformed the Zacks S&P 500 Composite while outperforming the broader Medical sector over the past year. The industry has lost 5.1% over this period, underperforming the S&P 500's appreciation of 16% and outperforming the broader sector’s slide of 13.2%.

One-Year Price Performance

Industry's Current Valuation

On the basis of the trailing 12-month EV/EBITDA (Enterprise Value/ Earnings Before Interest Tax Depreciation and Amortization) ratio, which is commonly used for valuing hospital stocks, the industry trades at 8.14X compared with the S&P 500’s 18.43X and the sector’s 10.32X.

Over the past five years, the industry has traded as high as 9.55X and as low as 6.47X, with a median of 8.08X, as the charts below show.

EV/EBITDA Ratio (Past 5 Years)

3 Hospital Stocks to Watch

HCA Healthcare: The company runs general and acute care hospitals and is poised to capitalize on increasing patient volumes. Rising inpatient surgeries, ER visits and telemedicine are driving growth and revenue diversification. Strategic acquisitions, along with consistent dividends and share buybacks, highlight its commitment to expansion and rewarding shareholders.

The Zacks Consensus Estimate for one of the biggest for-profit publicly traded hospitals’ 2025 EPS is pegged at $26.17, indicating 19.2% year-over-year growth. HCA Healthcare beat earnings estimates in each of the past four quarters, with an average surprise of 7%. The consensus mark for 2025 revenues of $74.9 billion signals a 6% increase from a year ago. Shares of the company have gained 26.4% over the past six months. It currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price & Consensus: HCA

Universal Health Services: The company manages acute care hospitals, outpatient centers and behavioral health facilities, specializing in autism, addiction and military-related care. Expansion is fueled by higher patient days, network growth, additional licensed beds and strategic behavioral health partnerships. A strong history of share buybacks underscores UHS’ commitment to returning value to shareholders.

The Zacks Consensus Estimate for Universal Health’s 2025 and 2026 bottom line is pegged at $20.43 and $21.82 per share, up 23% and 6.8% year over year, respectively. It beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 9.4%. The consensus mark for 2025 and 2026 revenues indicates 8.5% and 5.1% year-over-year increases.Shares of Universal Health have gained 17.3% over the past six months. It currently has a Zacks Rank #3.

Price & Consensus: UHS

Community Health Systems: The company runs a nationwide network of acute care hospitals and outpatient centers, supported by rising occupancy, steady same-store admissions and expanding telehealth services. Growth is driven by strategic partnerships, enhanced specialty offerings and operational efficiency improvements. Divesting non-core assets aims to strengthen CYH’s long-term profitability and cash flow, despite possible short-term effects.

The Zacks Consensus Estimate for Community Health Systems’ 2025 and 2026 bottom lines indicates 67% and 60.3% year-over-year improvements, respectively. The consensus mark for 2025 and 2026 revenues is pegged at $12.5 billion and $12.7 billion, respectively. Shares of Community Health Systems have gained 17.8% in the past six months. It has a Zacks Rank #3 at present.

Price & Consensus: CYH

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This article originally published on Zacks Investment Research (zacks.com).

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