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HCA Holdings, Inc. (HCA.) owns and operates hospitals, surgery centers and other medical facilities within the United States. The company's total network is comprised of 162 hospitals and 112 surgery centers as of the reported fiscal 3Q12 figures (announcement link provided here) with Texas and Florida representing 22.2% and 23.9% of network hospitals respectively. HCA has employed an expansion strategy in recent years that has expanded its overall facility count with a heightened emphasis on ASCs (Ambulatory Surgery Centers) coupled with an increase in the average bed count per hospital over the same period.

The expansion strategy has positioned the organization to capitalize on several near and intermediate-term macro events that are not reflected in current company and consensus estimates when the firm reports on Tuesday, February 5 (webcast link here). The company most recently reiterated its fiscal 4Q12 estimate of $7.4B-$8.4B with adjusted diluted per share earnings of $0.76-$0.96.

Current consensus estimates, as provided by Yahoo!Finance (link here), call for earnings of $0.83 on a per share basis with revenues totaling $8.95B. The forecasting model that has been developed for HCA suggests that revenues for the period will total $9.58B with per share earnings totaling $0.95.

It is believed that the impact of several drivers will positively impact quarterly performance and are summarized below:

- The current outbreak of influenza will have a strongly positive impact on HCA results through at least fiscal 1Q13.

- The geographic dispersion of the HCA network overlays nicely with several of the more intensely impacted states as suggested by Google Flu tracking (link available here).

- HealthONE results will favorably impact "same store" metrics following the completion of the fiscal 4Q11 acquisition.

- Corporate margins will benefit from the aggressive debt refinancing program that has served to significantly lower borrowing costs in recent quarters.

The table below also serves to underscore several near-term concerns that could ultimate benefit HCA over the intermediate-term.


(Click to enlarge)

Specifically, several states that constitute the majority of the HCA network are comprised of large uninsured and Medicaid populations. The net effect of such a patient population will be the compression of margins and a partial offset of the benefits associated with the firm's debt restructuring initiative.

Several key performance metrics will also be negatively impacted as patient volume increases in those highlighted states; uninsured discounts, bad debt expenses, revenue per admission and 'charity care', which has been under recent scrutiny. We are forecasting continued near-term operating pressures that will results in margins being inline with the 5.3% reported in fiscal 3Q12 and well below the 14.6% in the prior year's quarter (4Q11).

However, we have forecast the geographic network composition will serve as an intermediate-term boon for HCA. Our modeling suggests that the large uninsured patient populations in states which HCA operates will be increasingly monotized under the Affordable Care Act starting in 2014 (I will provide a detailed analysis of this point in a separate article).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: HCA Holdings Perfect Confluence For Fiscal 4Q12

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