Medical Care Facility company HCA Healthcare is standing out today, surging to $286.01 and marking a 5.6% change. In comparison the S&P 500 moved only 0.0%.
HCA currently sits within range of its analyst target price of $286.87, which implies that its price may remain stable for the near future.
Surprisingly, analysts give the stock an average rating of buy, which shows that they believe prices could continue to move. Over the last year, HCA Healthcare shares have outperformed the S&P 500 by 32.0%, with a price change of 28.6%.
HCA Healthcare, Inc., through its subsidiaries, provides health care services in the United States. The company is part of the healthcare sector. Healthcare companies work in incredibly complex markets, and their valuations can change in an instant based on a denied drug approval, a research and development breakthrough at a competitor, or a new government regulation. In the longer term, healthcare companies are affected by factors as varied as demographics and epidemiology. Investors who want to understand the healthcare market should be prepared for deep dives into a wide range of topics.
HCA Healthcare's trailing 12 month P/E ratio is 14.9, based on its trailing EPS of $19.14. The company has a forward P/E ratio of 14.8 according to its forward EPS of $19.37 -- which is an estimate of what its earnings will look like in the next quarter.
The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the first quarter of 2023, the health care sector has an average P/E ratio of 24.45, and the average for the S&P 500 is 15.97.
HCA’s price to earnings ratio can be divided by its projected five-year growth rate, to give us the price to earnings, or PEG ratio. This allows us to put its earnings valuation in the context of its growth expectations which is useful because companies with low P/E ratios often have low growth, which means they actually do not present an attractive value.
When we perform the calculation for HCA Healthcare, we obtain a PEG ratio of 2.17, which indicates that the company is overvalued compared to its growth prospects. The weakness with PEG ratios is that they rely on expected growth estimates, which of course may not turn out as expected.
To better understand the strength of HCA Healthcare's business, we can analyse its operating margins, which are its revenues minus its operating costs. Consistently strong margins backed by a positive trend can signal that a company is on track to deliver returns for its shareholders. Here's the operating margin statistics for the last four years:
| Date Reported | TotalRevenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 60,233,000 | 41,809,000 | 15.03 | -8.74 |
| 2021-12-31 | 58,752,000 | 39,593,000 | 16.47 | 16.89 |
| 2020-12-31 | 51,533,000 | 35,902,000 | 14.09 | 0.21 |
| 2019-12-31 | 51,336,000 | 35,637,000 | 14.06 | n/a |
- Average operating margins: 14.9 %
- Average operating margins growth rate: 1.7 %
- Coefficient of variability (lower numbers indicate less volatility): 7.6 %
HCA Healthcare's financial viability can also be assessed through a review of its free cash flow trends. Free cash flow refers to the company's operating cash flows minus its capital expenditures, which are expenses related to the maintenance of fixed assets such as land, infrastructure, and equipment. Over the last four years, the trends have been as follows:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | FreeCashFlow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 8,522,000 | -4,395,000 | 4,127,000 | -23.32 |
| 2021-12-31 | 8,959,000 | -3,577,000 | 5,382,000 | -15.87 |
| 2020-12-31 | 9,232,000 | -2,835,000 | 6,397,000 | 85.74 |
| 2019-12-31 | 7,602,000 | -4,158,000 | 3,444,000 | n/a |
- Average free cash flow: $4,837,500,000.00
- Average free cash flown growth rate: 4.6 %
- Coefficient of variability (lower numbers indicating more stability): 27.2 %
With its positive cash flow, the company can not only re-invest in its business, it can offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in HCA have received an annualized dividend yield of 0.8% on their capital.
HCA Healthcare is by most measures fairly valued because it has a very low P/E ratio, no publishedP/B ratio, and a steady stream of positive cash flows with a flat trend. The stock has strong growth indicators because it has a an average PEG ratio and consistent operating margins with a stable trend. We hope you enjoyed this overview of HCA's fundamentals.
