Unveiling HCA Healthcare's True Worth: Is It Really Priced Right? A Comprehensive Guide

A deep-dive into HCA Healthcare's valuation, financial strength, profitability, and growth prospects

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HCA Healthcare Inc (HCA, Financial) closed at $224.83 per share on October 24, 2023, marking a 6.69% decrease on the day. Over the past three months, the company has experienced a 21.73% loss. Despite this, HCA Healthcare's Earnings Per Share (EPS) stands at a robust 20.33. This raises the question: is the stock modestly undervalued? This article aims to answer this question by providing an in-depth valuation analysis of HCA Healthcare. Read on to uncover the intrinsic value of HCA Healthcare.

Company Overview

HCA Healthcare, a Nashville-based healthcare provider, operates the largest collection of acute-care hospitals in the United States. As of December 2022, the company owned and operated 182 hospitals, 126 freestanding outpatient surgery centers, and a broad network of physician offices, urgent-care clinics, and freestanding emergency rooms across 20 states, with a small foothold in England.

The company's current market cap stands at $61.20 billion, with sales reaching $61.90 billion. When compared with the GF Value of $287.46, the stock appears to be modestly undervalued.


Understanding GF Value

The GF Value is a proprietary valuation model developed by GuruFocus. It estimates the intrinsic value of a stock based on three key factors: historical trading multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line on the summary page provides an overview of the fair value at which the stock should ideally be traded.

If the stock price is significantly above the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, it is undervalued, and its future return will likely be higher.

Based on this valuation method, HCA Healthcare appears to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.


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Financial Strength

Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy its stock. Looking at the cash-to-debt ratio and interest coverage can provide a good starting point for understanding a company's financial strength.

HCA Healthcare has a cash-to-debt ratio of 0.02, which is worse than 93.7% of 651 companies in the Healthcare Providers & Services industry. GuruFocus ranks HCA Healthcare's overall financial strength at 4 out of 10, indicating that its financial strength is poor.


Profitability and Growth

Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. A company with high profit margins generally offers better performance potential than a company with low profit margins. HCA Healthcare has been profitable for 10 years over the past 10 years. During the past 12 months, the company had revenues of $61.90 billion and Earnings Per Share (EPS) of $20.33. Its operating margin of 15% is better than 82.57% of 654 companies in the Healthcare Providers & Services industry. Overall, GuruFocus ranks HCA Healthcare's profitability as strong.

Growth is probably one of the most important factors in the valuation of a company. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. HCA Healthcare's 3-year average revenue growth rate is better than 57.65% of 562 companies in the Healthcare Providers & Services industry. HCA Healthcare's 3-year average EBITDA growth rate is 17.6%, which ranks better than 63.16% of 513 companies in the Healthcare Providers & Services industry.

Return on Invested Capital (ROIC) vs. Weighted Average Cost of Capital (WACC)

Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, HCA Healthcare's ROIC was 17.36 while its WACC came in at 10.46.



In summary, HCA Healthcare's stock appears to be modestly undervalued. While the company's financial condition is poor, its profitability is strong. Its growth ranks better than 63.16% of 513 companies in the Healthcare Providers & Services industry. To learn more about HCA Healthcare's stock, you can check out its 30-Year Financials here.

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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.


I/We may personally own shares in some of the companies mentioned above. However, those positions are not material to either the company or to my/our portfolios.