HCA Healthcare (HCA): Buy, Sell, or Hold Post Q3 Earnings?

Since January 2021, the S&P 500 has delivered a total return of 82.8%. But one standout stock has more than doubled the market - over the past five years, HCA Healthcare has surged 183% to $470.79 per share. Its momentum hasn’t stopped as it’s also gained 29.1% in the last six months thanks to its solid quarterly results, beating the S&P by 19%.

Is now still a good time to buy HCA? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.

Why Are We Positive On HCA Healthcare?

With roots dating back to 1968 and a network spanning 20 states, HCA Healthcare (NYSE:HCA) operates a network of 190 hospitals and 150+ outpatient facilities providing a full range of medical services across the US and England.

1. Economies of Scale Give It Negotiating Leverage with Suppliers

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $74.37 billion in revenue over the past 12 months, HCA Healthcare is one of the most scaled enterprises in healthcare. This is particularly important because hospital chains companies are volume-driven businesses due to their low margins.

2. Outstanding Long-Term EPS Growth

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

HCA Healthcare’s EPS grew at an astounding 21.2% compounded annual growth rate over the last five years, higher than its 7.9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

3. Increasing Free Cash Flow Margin Juices Financials

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

As you can see below, HCA Healthcare’s margin expanded by 11.2 percentage points over the last five years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell. HCA Healthcare’s free cash flow margin for the trailing 12 months was 10.9%.

Final Judgment

These are just a few reasons HCA Healthcare is a high-quality business worth owning, and with its shares topping the market in recent months, the stock trades at 16.5× forward P/E (or $470.79 per share). Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.

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