Is HCA Holdings a Good Stock to Buy?

HCA Holdings’ (NYSE:HCA) network of 163 hospitals makes it the largest publicly held American pure-play hospital company, with a market capitalization of $11.5 billion. HCA IPO’d in March 2011 and after having dropped in price over the next several months has risen 21% this year. Contributing to this rise was its strong Q1 earnings report, in which earnings came in at $1.18 per share versus expectations of 94 cents; this was the third quarter in a row in which the company had beaten earnings by at least 20%. In addition, the upholding of the federal health reform bill has boosted hospital stocks as it removed concerns that the bill would be altered to reduce the expansion of various forms of health insurance coverage; hospitals stand to gain from the fact that it will be easier to get paid for treating the class of patients who is currently uninsured. HCA rose 10% on heavy volume on the day of the Supreme Court decision.

GLENVIEW CAPITAL

The company’s last 10-Q, for the first quarter of 2012, reported a 13% increase in revenues and a greater than 100% increase in earnings per share compared to the first quarter of 2011. Revenues rose among all classes of patients, led by both Medicare and managed care providers, and in all geographies, led by the Southwest region. Both of these trends reflect demographic changes in the U.S., and so should continue in the future. HCA Holdings now trades at an attractive arsenal of valuation multiples: 5 times trailing earnings, 7 times forward earnings estimates, 6.4 times trailing EBITDA, and a five-year PEG ratio of 0.7. By any textbook definition it would be a value stock, and as noted its earnings growth in its last quarterly report was strong.

Given these statistics, it should be unsurprising that there is a good deal of hedge fund ownership of HCA Holdings. Glenview Capital, managed by Larry Robbins, reported owning 7.8 million shares of the company at the end of March, a small decline from what the fund had owned at the beginning of the year (find more of Glenview Capital’s favorite stocks). John Griffin’s Blue Ridge Capital (Griffin used to be a top lieutenant of Julian Robertson) increased is position to 7.6 million shares (see more stock picks from John Griffin). David Einhorn’s Greenlight Capital was also an investor in HCA, owning 4.2 million shares.

HCA Holdings has a number of smaller peers in the hospital industry. Universal Health Services (NYSE:UHS) trades at similarly low multiples: P/E ratios in the high single digits, 6 times trailing EBITDA, and a five-year PEG of 0.6. It also saw an increase in earnings in its last quarter, but not as large as HCA did. Community Health Systems (NYSE:CYH) also has multiples in that range. Tenet Healthcare (NYSE:THC) carries the slight difference that its trailing earnings are not very good, pushing its P/E up to 51, but sell-side analysts expect it to fall in line with the other hospital companies and the rest of its valuation metrics reflect that. Finally, the $1.9 billion market cap Lifepoint Hospitals (NASDAQ:LPNT), while still squarely in value territory on an absolute level, is priced a bit more for growth compared to these other peers with P/E ratios in the 10-11 range and a five-year PEG of 1.2. We’d note that there are slight differences in the mix of services that these companies provide- for example, Universal Health Services has a substantial business unit focused on behavioral health centers, Community Health Systems has a secondary business unit that manages home health care agencies, Tenet has a number of locations focused on diagnostic imaging, and Holdings and Lifepoint seem to be more pure-play standard hospital companies. Given the similarities in valuation, then, an investor could determine which if any of the secondary segments of health services is the most attractive opportunity and pursue the appropriate company. In our case, we would go with the more mental health-driven “behavioral health” operations as having the strongest high-margin growth prospects and pick Universal Health above the rest, but any of these companies look attractive from a value perspective.

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!