HCA Healthcare is one healthy business

One of the biggest losers of Mag 7 during the revenue season was Nvidia (NVDA). I called the top of the NVDA in August 2024 and after reporting excellent revenue, I'm not surprised to see it falling sharply. The story of valuation not being important is disproved right in front of our eyes. If you follow my reports on the company's stock, you'll know that recent price drops are still not enough to make the stock attractive.

NVDA is not alone. There are busy trading and overvalued stocks everywhere. With the market reaching new highs, it becomes increasingly difficult to find good inventory. Therefore, I see the opportunity at the market pullback. We are seeing the golden age of stocks over the next few years as the market removes more false stories (remember NFTS) and embraces the foundations again.

Meanwhile, my company's proven research continues to give me an advantage in finding good stocks. I work harder and smarter with the company's Robo Analyst AI, scrutinizing the market and data to identify stocks, ETFs and mutual funds with the best risk/rewards.

I previously made HCA Healthcare Inc (HCA) a long idea in June 2020, repeating my bullish views on stocks many times. Since my original report, HCA has surpassed 137% as a long idea, and has risen 224% while S&P has risen 87%. Even after surpassing the overall market, HCA Healthcare is a strong business and remains a very attractive inventory.

The HCA provides favorable risk/reward based on the company's own.

Consistent highest and ultimate growth, increased number of patients and hospitals, strong position as an industry leader, high dividends and stock buyback yields, and cheap stock valuations.

What's working

The foundations that are growing consistently

HCA Healthcare has steadily grown its top and bottom lines since 2007.

HCA Healthcare has increased revenue by 6%, and net profit after tax (NOPAT) has increased by 8% per year since 2007. See Figure 1. The company improved its NOPAT margin in 2007 to 11.9% in 2024, increasing its investment capital turn to 1.48 to 1.32 over the same time. Increases in operating and capital efficiency will be promoted from 13% in 2007 to 18% from 13% in 2024.

Figure 1: HCA Healthcare Revenues and NOPAT since 2007

Patient hospitalizations and hospital locations are increasing

The previous year of 2024 (Yoy), HCA Healthcare's:

Enrollment at facilities increased by 7.9% with revenues at the same facility increased by 4.9% with enrollment at facilities increased by 2.2% with 4.9% with surgical volume of patients at the same facility increased by 2.2% with visits at the same facility emergency room

In the long term, the company has grown years of admission (a general measure of hospitalization volume) in eight of the past decade.

Total HCA Healthcare admissions increased from 1.8 million in 2014 to 2.2 million in 2024, or 2% per year. At the same time, the company expanded the number of hospitals operating from 166 to 190. See Figure 2.

Figure 2: HCA Healthcare enrollment and number of hospitals: 2014 – 2024

Medical expenses are scratched and

Hospital operators such as HCA Healthcare will benefit from a consistent long-term tailwind of aging and long-term population, as well as increased healthcare costs.

In 2022, 17% of the US population was over 65 years old. That percentage is expected to increase to 22% by 2040. The population of people over the age of 85 is expected to double from 2022 to 2040.

As the population ages, medical costs increase. In fact, people aged 65-84 years of age are 1.6 times higher than those aged 45-64 years and 3.1 times higher than those aged 19-44 years.

Increased spending from aging drives forecasts for the continued growth of hospital spending. According to Peterson KFF Health System Tracker, hospital spending is expected to grow annually.

4.8% in 2025 4.6% in 2026 5.9% in 2027 5.7% in 2028 5.8% in 2029 5.4% in 2030 5.4% in 2032 5.4%

With its industry leadership position and excellent profitability (more onwards), HCA Healthcare is well positioned to capitalize on the steady growth in healthcare costs for years to come.

Attractive dividends and buyback yields

Since 2018, HCA Healthcare has paid $3.8 billion in cumulative dividends (5% of market capitalization), increasing its quarterly dividend from $0.35 in February 2018 to $0.72/spot in March 2025.

The HCA also returns capital to shareholders through share buybacks. From 2018 to 2024, the company repurchased $28.1 billion (34% of market capitalization). The $16.9 billion of this repurchase activity occurred between 2022 and 2024.

In January 2025, the HCA Healthcare board approved a new $10 billion share repurchase program. Management noted in a call for revenue for 4Q24, “we expect to complete a significant portion in 2025.”

If the company buys back the shares at the 2024 rate, it will buy back $6 billion in 2025. This is equivalent to 7.3% of the current market capitalization. Once combined, dividends and stock repurchase yields could reach 8.1%.

Long track record of generating quality cash flows

The HCA generates sufficient free cash flow (FCF) to cover both stock repurchases and regular dividend payments. From 2018 to 2024, HCA generated $30.9 billion in FCF, paying a dividend of $3.8 billion and a $28.1 billion repurchase with a total return on capital of $31.9 billion. I like companies that have chosen to return so much capital to shareholders rather than spending on executive bonuses or acquisitions. See Figure 3.

Figure 3: HCA Healthcare Free Cash Flow vs. Cash Dividends Payed: 2018-2024

HCA Healthcare generates positive free cash flow (FCF) each year for my model. Quarterly, the company generated positive FCFs in 46 of the last 52 quarters. Since 2018, HCA Healthcare has generated $30.9 billion (23% of enterprise value) in FCF. See Figure 4.

Figure 4: Cumulative FCF for HCA Healthcare since 2018

Proven industry leaders

HCA Healthcare was the most profitable healthcare company of all my peers when I first wrote my long idea report, and it's number one today. He is also the largest hospital operator in terms of revenue and number of locations.

HCA Healthcare's ROIC and investment capital turns are higher than all peers, and the company's NOPAT margin exceeds all but one of its publicly available competitors. Competitors for this analysis include Encompass Health (EHC), Tenet Healthcare (THC), Universal Health Services (UHS), and more, according to Figure 5.

Figure 5: HCA Healthcare Profitability vs. Peers: Late 12 Months (TTM)

What's not working

Skilled labor is difficult to obtain in healthcare

There is still a shortage of skilled workers in the healthcare industry. Job satisfaction for registered nurses (RNs) and advanced practice registered nurses (APRNs) has remained low since Covid-19 due to increased levels of stress and excessive working hours. Many nurses also left the workforce after Covid. Worse, while the key segment of nursing workers is approaching retirement age, there are too few new nurses participating in the workforce.

Nursing enrollment has not grown fast enough to meet the expected demand for RN and APRN services, according to the American Association of Nursing Colleges (AACN). Employing adequate labor continues to be a headwind for the entire healthcare industry, including HCA. However, the company is taking steps to recruit and retain quality employees. In a revenue call for 4Q24, management noted that employee engagement was “highest ever.” This has allowed the company to “reduce and improve capabilities of facilities with continuity and staffing.”

Unknown customs fees

Product costs are rising, and the possibility that newly controlled tariffs will further promote costs remains a risk for many businesses. In a revenue call for 4Q24, HCA Healthcare Management noted that it is working on a long-standing tariff easing strategy to manage the supply costs required to operate the hospital. Importantly, management noted in 2025 that 70% of its supply was already contracted with solid pricing, which could help reduce the increase in supply costs when massive tariffs are enacted and the cost of supply.

Importantly, HCA Healthcare is already priced as if tariffs and labor costs could damage the business and lead to reduced profitability. Management's ability to mitigate these challenges will result in a rise in stock, as shown below.

Stocks are priced at zero growth

Below we analyze the expectations of various stock price scenarios in HCA using a reverse discount cash flow (DCF) model. At current prices, the economic book value (PEBV) ratio for HCA is 1.0. In other words, the market expects NOPAT to not grow from its current level. For context, HCA has increased by 8% each year since 2014 and has increased by 7% annually since 2007.

The first scenario quantifies expectations burned into current prices. If I assume:

The NOPAT margin immediately fell to 9% (the lowest NOPAT margin in 2024, equal to the average for the last five years), with revenue increasing at 4% per year until 2034 (compared to 7% per year over the last five and ten years)

The shares are worth $319 per share today. It is roughly equivalent to the current stock price. For reference, the revenue growth for this scenario is below the consensus expectations of 5.7% growth in 2025 and 5.1% growth in 2026. In this scenario, HCA's NOPAT will increase by just 1% from 2025 to 2034.

Stocks could be higher than 36% in consensus growth rate

If instead I assume:

The NOPAT margin soon fell to 10% by 2034, with revenue increasing at consensus rates of 2025 (5.7%), 2026 (5.1%) and 2027 (5.3%), with revenue increasing at the annual consensus rate (5.5%) until 2034, then up until 2034.

The shares are worth $435 per share today. It's upside at 36% of the current price. In this scenario, HCA's NOPAT will increase by 4% each year from 2025 to 2034. Stocks are rising even further if the company's NoPAT grows to a historic level.

Figure 6: Historical and implicit NOPAT for HCA Healthcare: DCF evaluation scenario

Disclosure: David Trainer, Kyle Guske II, and Hakan Salt are not compensated to write about any particular inventory, sector, style, or theme.