HCA Healthcare (HCA)

Hospital operator HCA Healthcare (NYSE:HCA) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 5.7% year on year to $18.32 billion. The company expects the full year’s revenue to be around $74.3 billion, close to analysts’ estimates. Its GAAP profit of $6.45 per share was 11.5% above analysts’ consensus estimates.

Company Overview

With roots dating back to 1968 and a network spanning 20 states, HCA Healthcare (NYSE:HCA) operates a network of 190 hospitals and 150+ outpatient facilities providing a full range of medical services across the US and England.

Hospital chains operate scale-driven businesses that rely on patient volumes, efficient operations, and favorable payer contracts to drive revenue and profitability. These organizations benefit from the essential nature of their services, which ensures consistent demand, particularly as populations age and chronic diseases become more prevalent. However, profitability can be pressured by rising labor costs, regulatory requirements, and the challenges of balancing care quality with cost efficiency. Dependence on government and private insurance reimbursements also introduces financial uncertainty. Looking ahead, hospital chains stand to benefit from tailwinds such as increasing healthcare utilization driven by an aging population that generally has higher incidents of disease. AI can also be a tailwind in areas such as predictive analytics for more personalized treatment and efficiency (intake, staffing, resourcing allocation). However, the sector faces potential headwinds such as labor shortages that could push up wages as well as substantial investments needs for digital infrastructure to support telehealth and electronic health records. Regulatory scrutiny, and reimbursement cuts are also looming topics that could further strain margins.

HCA Healthcare's main competitors include other large hospital operators such as Tenet Healthcare (NYSE:THC), Universal Health Services (NYSE:UHS), Community Health Systems (NYSE:CYH), and Ascension Health, as well as regional healthcare systems in its operating markets.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $71.59 billion in revenue over the past 12 months, HCA Healthcare is one of the most scaled enterprises in healthcare. This is particularly important because hospital chains companies are volume-driven businesses due to their low margins.

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, HCA Healthcare’s sales grew at a mediocre 6.7% compounded annual growth rate over the last five years. This wasn’t a great result compared to the rest of the healthcare sector, but there are still things to like about HCA Healthcare.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. HCA Healthcare’s annualized revenue growth of 8.4% over the last two years is above its five-year trend, suggesting some bright spots.

This quarter, HCA Healthcare reported year-on-year revenue growth of 5.7%, and its $18.32 billion of revenue exceeded Wall Street’s estimates by 0.5%.

Looking ahead, sell-side analysts expect revenue to grow 5.4% over the next 12 months, a deceleration versus the last two years. We still think its growth trajectory is satisfactory given its scale and suggests the market is baking in success for its products and services.

HCA Healthcare has managed its cost base well over the last five years. It demonstrated solid profitability for a healthcare business, producing an average operating margin of 17.4%.

Looking at the trend in its profitability, HCA Healthcare’s operating margin of 15.9% for the trailing 12 months may be around the same as five years ago, but it has decreased by 3.4 percentage points over the last two years. Still, we’re optimistic that HCA Healthcare can correct course and expand its profitability on a longer-term horizon due to its business quality.

In Q1, HCA Healthcare generated an operating profit margin of 20.3%, up 3.2 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

HCA Healthcare’s EPS grew at an astounding 20.7% compounded annual growth rate over the last five years, higher than its 6.7% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand.

We can take a deeper look into HCA Healthcare’s earnings quality to better understand the drivers of its performance. A five-year view shows that HCA Healthcare has repurchased its stock, shrinking its share count by 27.5%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

In Q1, HCA Healthcare reported EPS at $6.45, up from $5.93 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects HCA Healthcare’s full-year EPS of $22.50 to grow 14.9%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

HCA Healthcare has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 8.5% over the last five years, slightly better than the broader healthcare sector.

Taking a step back, we can see that HCA Healthcare’s margin dropped by 6.8 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

HCA Healthcare’s free cash flow clocked in at $660 million in Q1, equivalent to a 3.6% margin. The company’s cash profitability regressed as it was 4.2 percentage points lower than in the same quarter last year, which isn’t ideal considering its longer-term trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

HCA Healthcare’s five-year average ROIC was 28.5%, placing it among the best healthcare companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, HCA Healthcare’s ROIC has unfortunately decreased. Only time will tell if its new bets can bear fruit and potentially reverse the trend.

HCA Healthcare reported $1.06 billion of cash and $44.58 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $14.26 billion of EBITDA over the last 12 months, we view HCA Healthcare’s 3.1× net-debt-to-EBITDA ratio as safe. We also see its $1.00 billion of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see HCA Healthcare beat analysts’ EPS expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street’s estimates. On the other hand, its full-year revenue guidance was in line. Zooming out, we think this was a decent quarter featuring some areas of strength but also some blemishes. The stock traded up 1.4% to $346.39 immediately following the results.

Updated: June 15, 2025 at 12:08 AM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

HCA Healthcare is an amazing business ranking highly on our list. Although its revenue growth was mediocre over the last five years with analysts expecting growth to slow even further from here, its scale makes it a trusted partner with negotiating leverage. On top of that, HCA Healthcare’s astounding EPS growth over the last five years shows its profits are trickling down to shareholders.

HCA Healthcare’s P/E ratio based on the next 12 months is 14.4x. Looking at the healthcare landscape today, HCA Healthcare’s fundamentals really stand out, and we like it at this price.

Wall Street analysts have a consensus one-year price target of $386.48 on the company (compared to the current share price of $371.18), implying they see 4.1% upside in buying HCA Healthcare in the short term.