HCA Healthcare is Thursday's IBD Stock Of The Day as the acute-care hospital operator offers investors relative safety now that inflation has overtaken the pandemic as the public enemy No. 1. HCA stock is just below a buy point and offers several potential trading opportunities to play the current rally.
HCA stock sold off as much as 18% early in the year as omicron raged, hitting bottom on a Jan. 27 earnings miss. The culprits were the patients who didn't show up, with volumes down vs. Q4 2019, the last pre-Covid quarter. Normally, the use of health care gets a seasonal bump toward the end of the year, when insurance deductibles are already exhausted, but that didn't happen.
"4Q seasonality wasn't what we normally see and we believe is the cause for the 4Q miss and light 2022 guidance," wrote Deutsche Bank analyst Pito Chickering.
But HCA does expect a recovery in 2022. "Deferred demand" should improve trends in the first part of 2022, CEO Sam Hazen said. That should be aided by strong job growth in major HCA markets, such as Florida and Texas, and a bigger pool of insured patients covered via the state exchanges, he said. Those are positives partly because commercial plans reimburse at higher rates than Medicaid, and some HCA states didn't expand Medicaid under the Affordable Care Act.
Yet as Covid recedes, one impact may persist for a while: higher patient acuity. The patients who are coming in have more severe conditions, which may relate to care being deferred amid the Covid surges.
HCA Post-Covid Profit Margins
Amid "favorable" payor and acuity trends, "We expect margins to land between 20% and 21%," CFO Bill Rutherford said. That compares to about 19.5% pre-Covid.
That's despite inflation pressures and labor costs. The end of Covid surges will help the latter, allowing HCA to cut its use of contract labor.
While pressure to hold down health costs may continue to shift more care to non-hospital settings, HCA is positioning itself to get a bigger share of that pie. In 2021, it increased ambulatory care sites, including urgent care and surgery centers, by 14% to about 2,200.
HCA Stock
HCA stock closed down 1 cent at 260.60 in Thursday's stock market action. At the moment, HCA stock is parked right above its 21-day moving average. A move higher from here would be actionable, lifting HCA past the down-sloping trendline from its March 11 high of 272.26.
That 272.26 high crested just above a 269.85 buy point, which is still operative. The latest consolidation, since it started above the buy point, is like a high handle, which would make 272.36 another entry point.
However, it's still not clear how long and strong this young rally will turn out to be. So early entry points may be a safer way to take advantage of the current momentum.
Meanwhile, Tenet Healthcare, the No. 1-rated stock in IBD's Medical-Hospitals group is consolidating near the top of its buy range from an 83.79 buy point. But THC stock has been forming a shelf in a narrow range right at its 21-day average, and could soon be actionable.
More broadly, medical service stocks are faring well, with insurers UnitedHealth and Anthem in buy zones while CVS Health is setting up.
