Standing out among the Street's worst performers today is HCA Healthcare, a medical care facility company whose shares slumped -4.7% to a price of $347.6, 11.22% below its average analyst target price of $391.54.
The average analyst rating for the stock is buy. HCA lagged the S&P 500 index by -5.0% so far today and by -6.3% over the last year, returning 7.2%.
HCA Healthcare, Inc., through its subsidiaries, owns and operates hospitals and related healthcare entities 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 15.4, based on its trailing EPS of $22.53. The company has a forward P/E ratio of 12.4 according to its forward EPS of $24.55 -- which is an estimate of what its earnings will look like in the next quarter. As of the third quarter of 2024, the average Price to Earnings (P/E) ratio for US health care companies is 22.94, and the S&P 500 has an average of 29.3. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in HCA Healthcare's free cash flow, which was $5.64 Billion as of its most recent annual report. This represents the amount of money that is available for reinvesting in the business, or for paying out to investors in the form of a dividend. With its strong cash flows, HCA is in a position to do either -- which can encourage more investors to place their capital in the company. Over the last four years, the company's free cash flow has been growing at a rate of 2.8% and has on average been $4.95 Billion.
HCA Healthcare is likely undervalued at today's prices because it has a Very low P/E ratio, no published P/B ratio, and generally positive cash flows with a flat trend. The stock has strong growth indicators because of its strong operating margins with a stable trend, and an above average PEG ratio. We hope this preliminary analysis will encourage you to do your own research into HCA's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.
