HCA’s strategies have generally yielded positive results over the long run

Business Strategy and Outlook

HCA operates the largest network of hospitals in the United States, focusing on attractive geographic locations where it has the potential for leading and increasing market share. While it has locations in nearly 20 states and headquarters in Nashville, its facilities are particularly concentrated in Texas and Florida, which represent over half of its bed count. In those states, urban areas of focus include Dallas, Austin, Tampa, and Miami, and those geographic areas provide a good sense of the positive demographic factors that the firm aims to benefit from across the country.

Within its target markets, HCA aims to expand market share through a variety of strategies to attract patients, physicians, and third-party payers. The company provides wide networks of facilities within its chosen geographic markets with key hospital anchors supported by ambulatory surgical centers, urgent care centers, and physician clinics at convenient access points. HCA aims to be the facility of choice for physicians who are typically free agents with practicing rights to other hospitals in the area. For example, HCA has spent the past decade or so investing in its surgical suites to improve efficiency, nursing, and technology offerings to appeal to surgeons scheduling those procedures and positively influence patient satisfaction, which builds on the reputation of HCA’s facilities. From a payer standpoint, HCA continues to contract with health insurers in three-year cycles, which is typically manageable but is causing some concerns due to spiking labor costs. Overall though, HCA’s strategies have generally yielded positive results over the long run. For example, the company continues to grind out market share gains in its local markets with market share standing at roughly 27% at the end of 2020, up from 23% in 2011, according to HCA management. Once HCA works through current labor challenges, the firm is to grow its top line in the mid single digits and its adjusted earnings per share to grow in the low double digits.

Financial Strength

At the end of 2021, the company owed about $35 billion in debt, or gross leverage of less than 3 times, or below its new leverage target of 3.0 to 4.0 times, which is down from 3.5 and 4.5 times previously. At the end of 2021, HCA held just under $2 billion in cash after returning the government aid that it was originally granted during the COVID-19 health crisis of 2020. With those liquid resources at its disposal and free cash flows expected to range between roughly $5 billion and $7 billion annually during the next five years, HCA should be able to manage its debt maturities during the next five years through internal means. Those maturities include $0.2 billion due in 2022, $2.9 billion due in 2023, $2.4 billion due in 2024, $4.6 billion due in 2025, and $5.3 billion in 2026. However, the company plans to return significant cash to stakeholders going forward. As of February 2022, the company was authorized to repurchase about $9 billion in shares, which the firm expects to use in the next couple of years. Also, HCA just reinstated its dividend ($0.6 billion annual run rate), which was temporarily suspended during the pandemic. The company also distributed about $0.7 billion in cash to noncontrolling interests in 2021, and those outflows might grow mildly going forward. Overall, HCA’s planned distributions to stakeholders may lead to more debt issuance to refinance maturities or even to finance some of these outflows to stakeholders, going forward.

Bulls Say’s

Beyond administrative function efficiency, HCA’s large scale gives it an opportunity to test and expand best practices throughout its network of facilities to improve service quality and efficiency.

HCA’s focus on attractive geographic locations gives it a volume tailwind that should positively affect its top line.

The company’s financial leverage should be easily manageable, giving HCA flexibility for U.S. healthcare policy changes or other shocks to the system that could constrain demand for the more elective, and highly profitable, parts of its business.

Company Profile

HCA Healthcare is a Nashville-based healthcare provider organization operating the largest collection of acute-care hospitals in the U.S. As of December 2021, the firm owned and operated 182 hospitals, 125 freestanding outpatient surgery centers, and a broad network of physician offices, urgent care clinics, and freestanding emergency rooms across nearly 20 states and a small foothold in England.

(Source: MorningStar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do, business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities. Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and is not liable for any unintentional errors in the document. The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.