Investment Thesis
The twin issues of pandemic and recession have thrown into question the defensive nature of the healthcare stocks. The for-profit hospitals are facing curbs on profitable elective surgeries, hindering their growth prospects. HCA Healthcare, Inc. (NYSE:HCA), dominating the Southern U.S., has witnessed its top line growth stagnating, and the net income has almost halved in the past quarter. That was before the region experienced a resurgence of the pandemic.
Now, the curbs are back but they are less severe, and the healthcare system is better prepared to handle a surging number of COVID-19 patients. The sharp decline in surgical procedures is unlikely to persist, and therefore, HCA’s consensus forecasts appear underwhelming. Even with the current trading multiple, our forecasts highlight an undervalued HCA. The company is debt-heavy, but gearing remains low compared to peers. The government relief programs and the capital rationalization have eased liquidity pressure. Despite the uncertain near-term outlook, the largest hospital operator in the U.S. is well-positioned to emerge unscathed from the twin impact of pandemic and recession.
Source: Fierce Healthcare
Overly Exposed to a Resurgent Pandemic
When HCA IPOed more than nine years ago, the sector was battling uncertainty over the U.S. healthcare reforms at the time, and the firm’s debt-heavy capital structure came under heavy scrutiny of analysts. Since then, the company based in Nashville, Tennessee, has well outperformed the sector, more than quadrupling in value until COVID-19 pandemic rattled markets in late February this year. The deadly infection is making a comeback, and the hard-hit states are reimposing restrictions on non-emergency hospital procedures to accommodate the rising patient numbers, forcing the healthcare providers to defer profitable elective surgeries.
With Texas and Florida fast becoming the new virus hotspots, the hospital operators highly exposed to the region are taking a heavy beating. Housing more than
