HCA Healthcare Inc (HCA, Financial) experienced a daily loss of 2.96%, with a 3-month loss of 6.85%. The company's Earnings Per Share (EPS) (EPS) stands at a healthy 20.33. But the question remains, is HCA Healthcare's stock modestly undervalued? This article will provide an in-depth valuation analysis of HCA Healthcare, shedding light on its true worth. So, let's dive in.
Company Introduction
HCA Healthcare Inc (HCA, Financial) is a Nashville-based healthcare provider organization operating the largest collection of acute-care hospitals in the United States. As of December 2022, HCA Healthcare 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 and England. With a current stock price of $255.79, HCA Healthcare's intrinsic value, as estimated by the GF Value, stands at $284.41. This discrepancy suggests that HCA Healthcare's stock may be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on three factors: historical multiples that the stock has traded at, a GuruFocus adjustment factor based on the company's past performance and growth, and future estimates of business performance. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally trade. If the stock price is significantly above the GF Value Line, the stock is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
According to the GF Value, HCA Healthcare's stock appears to be modestly undervalued. At its current price of $255.79 per share, the long-term return of HCA Healthcare's stock is likely to be higher than its business growth, given its current undervaluation.
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Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. HCA Healthcare has a cash-to-debt ratio of 0.02, which is worse than 94.65% of 654 companies in the Healthcare Providers & Services industry. GuruFocus ranks the overall financial strength of HCA Healthcare at 4 out of 10, which indicates that the financial strength of HCA Healthcare is poor.
Profitability and Growth
It is less risky to invest in profitable companies, especially those with consistent profitability over the long term. A company with high profit margins is usually a safer investment than those with low profit margins. HCA Healthcare has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $61.90 billion and Earnings Per Share (EPS) of $20.33. Its operating margin is 15%, which ranks better than 83.98% of 649 companies in the Healthcare Providers & Services industry. Overall, the profitability of HCA Healthcare is ranked 10 out of 10, which indicates strong profitability.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of HCA Healthcare is 11.5%, which ranks better than 57.77% of 573 companies in the Healthcare Providers & Services industry. The 3-year average EBITDA growth rate is 17.6%, which ranks better than 62.79% of 524 companies in the Healthcare Providers & Services industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, HCA Healthcare's ROIC is 17.36 while its WACC came in at 10.32.
Conclusion
Overall, HCA Healthcare (HCA, Financial) stock gives every indication of being modestly undervalued. The company's financial condition is poor, but its profitability is strong. Its growth ranks better than 62.79% of 524 companies in the Healthcare Providers & Services industry. To learn more about HCA Healthcare stock, you can check out its 30-Year Financials here.
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