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Why Should You Retain HCA Healthcare (HCA) in Your Portfolio?

HCA Healthcare, Inc. HCA has been in investors’ good books on the back of growth initiatives and cost-cutting measures.

The company is well-poised for progress, evident from its favorable VGM Score of A. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.

Its long-term growth rate stands at 11.1%, above the industry's average of 9%.

HCA Healthcare came up with an earnings surprise of 55.3%, on average, beating on the bottom line in two of the trailing four quarters while missing on the same in the remaining two.

Now let’s see how this company is an investor’s favorite.

Given the current scenario, HCA Healthcare took full advantage of the rise in demand for telemedicine. The company expanded its telemedicine product offerings, thus providing medical care to people who are in dire need of it. Therefore, we expect this business to continue performing well.

The company’s acquisitions have been instrumental in building its growth trajectory over the past several years. Its inorganic growth strategies bumped up patient volumes, enabled network expansion across several markets and added hospitals to its portfolio. The series of buyouts is expected to add scale to its business, positioning it better to weather the regulatory uncertainties in the healthcare sector. In the first nine months of 2020, it had spent $380 million on the purchases of a hospital in New Hampshire and other nonhospital health care entities.

HCA Healthcare devised a three-stage cost-reduction plan and implemented the first-stage items and a few second-stage items in the second quarter of 2020.

This leading hospital company also undertook a host of activities to cut down its expenses. Some of the measures include travel freezes, regulation of a variable cost structure, contraction in discretionary spending, etc. These measures are expected to aid its margins.

Its balance sheet and cash flows (the company has consistently generated a solid free cash flow for the past several years) are impressive and increase the prospects of accretive mergers and acquisitions. Its cash flow provided by operating activities continues to be strong with the metric rising 12.4% and 151.4% year over year in 2019 and during the first nine months of 2020, respectively.

However, the coronavirus outbreak required hospitals to keep their elective procedures on hold to accommodate any potential surge in the COVID-19 infected admissions. Cancellation of elective surgeries to make room for the coronavirus-infected patients is hurting the company’s revenues. HCA Healthcare withdrew its outlook because of the economic volatility stemming from the coronavirus impact.

The company's 2021 earnings estimate stands at $11.94, implying a 14.2% rise from the year-ago reported figure.

Zacks Rank and Price Performance

Shares of this presently Zacks Rank #3 (Hold) company have gained 78.4% in the past six months, outperforming its industry’s growth of 76.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other companies in the same space, such as Tenet Healthcare Corporation THC, Community Health Systems Inc. CYH and Acadia Healthcare Company Inc. ACHC have also soared 150.4%, 163.3% and 107.5% in the same time frame.

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