HCA Healthcare, Inc. Just Reported A Surprise Profit, And Analysts Lifted Their Estimates

It’s been a pretty great week for HCA Healthcare, Inc. (NYSE:HCA) shareholders, with its shares surging 18% to US$126 in the week since its latest quarterly results. It was overall a positive result, with revenues beating expectations by 6.0% to hit US$11b. HCA Healthcare also reported a statutory profit of US$3.16, which was a nice improvement from the loss that the analysts were predicting. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.

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Taking into account the latest results, HCA Healthcare’s 19 analysts currently expect revenues in 2020 to be US$50.3b, approximately in line with the last 12 months. Per-share earnings are expected to increase 8.2% to US$10.70. In the lead-up to this report, the analysts had been modelling revenues of US$48.7b and earnings per share (EPS) of US$5.84 in 2020. There’s been a pretty noticeable increase in sentiment, with the analysts upgrading revenues and making a massive increase in earnings per share in particular.

With these upgrades, we’re not surprised to see that the analysts have lifted their price target 6.9% to US$145per share. That’s not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic HCA Healthcare analyst has a price target of US$175 per share, while the most pessimistic values it at US$124. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await HCA Healthcare shareholders.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. We would highlight that HCA Healthcare’s revenue growth is expected to slow, with forecast 0.3% increase next year well below the historical 6.0%p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 6.6% next year. So it’s pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than HCA Healthcare.

The Bottom Line

The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around HCA Healthcare’s earnings potential next year. Fortunately, they also upgraded their revenue estimates, although our data indicates sales are expected to perform worse than the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.

With that in mind, we wouldn’t be too quick to come to a conclusion on HCA Healthcare. Long-term earnings power is much more important than next year’s profits. We have estimates – from multiple HCA Healthcare analysts – going out to 2024, and you can see them free on our platform here.

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