Covid-19 has disrupted industries all across the globe, perhaps none more than the Healthcare industry. Hospitals incurred costly preparations for Covid-19 patients and big hits to revenue from reductions in nonurgent care patients. Investors who cannot see past the temporary disruption to HCA Healthcare Inc’s (HCA) operations are in the Danger Zone. I think there’s great value in this Long Idea.
I previously made HCA Healthcare a Long Idea in December 2018. Since then, the stock has underperformed the S&P 500 (down 26% vs. S&P up 19%). Despite the stock’s underperformance, the firm has increased its profitability, and the stock is even more attractive.
HCA Healthcare’s History of Profit Growth
HCA Healthcare has a strong history of profit growth. Over the past five years, HCA has grown revenue by 7% compounded annually and core earnings by 11% compounded annually, per Figure 1. Longer term, HCA Healthcare has grown core earnings by 16% compounded annually since 2007. The firm increased its core earnings margin from 2% in 2007 to 7% in the trailing-twelve-month period (TTM).