HCA Healthcare: 4 Reasons to Buy the 25% Dip

Key Points

• HCA Healthcare is the largest for-profit hospital operator in the United States, with 187 hospitals and over 2,600 healthcare and ambulatory facilities.
• HCA Healthcare missed third quarter 2024 consensus analyst EPS and revenue estimates largely due to the impact of Hurricane Helene and Milton.
• HCA expects ongoing expenses from the hurricanes to translate into $200 million to $300 million in Q4 2024 but should be alleviated in 2025.

The plight of medical providers collecting timely reimbursements from health insurers is a struggle that has been getting tougher by the year. Health insurance claim denials have come under scrutiny in light of recent events. Sentiment has turned sour on the medical sector stocks of insurance carriers and healthcare facilities and operators. Adding to the selling pressure are concerns the Trump administration will let the premium tax credit (PTC) for health exchange subsidies that expire under the Affordable Care Act (ACA) expire at the end of 2025.

HCA Healthcare Inc. NYSE: HCA is the nation’s largest for-profit hospital operator that has recently seen its stock price drop nearly 25% within the last 60 days from a peak of $417.14 on October 17, 2024, to $313.93 on Dec.6, 2024. HCA shares have been cascading lower since its Q3 2024 release, which missed consensus analyst EPS estimates by 8 cents and revenue estimates by $39.34 million. The selling may be overdone, and here are four reasons to consider buying the dip.

1) Outlier Hurricanes Negatively Impacted HCA in Q3 Through Q4 2024

Nashville, Tennessee-based HCA was negatively impacted by the outlier hurricane season in its third quarter of 2024. Hurricanes Helene and Milton caused catastrophic damage to the southeast states of Florida, Georgia, North and South Carolina, Virginia, and Tennessee. HCA incurred additional expenses associated with Hurricane Helene's impact on its facilities in Florida, Georgia, and North Carolina, amounting to around 15 cents per share. Backing that out would have resulted in a 7-cent EPS beat in Q3.

HCA pointed out that the ongoing additional expenses and loss of revenues from Helene and Milton would impact October or Q4 revenues by nearly $200 million to $300 million or 60 cents to 90 cents per share.

HCA expects full-year 2024 EPS and revenue estimates to come in at the lower range of previous estimates.

While some of the ongoing impacts of the hurricanes will continue into 2025 in its North Carolina facilities, HCA believes they will be manageable. It expects the full-year 2025 EPS and adjusted EBITDA to grow near or slightly above its upper end of long-term growth ranges.

HCA CEO Sam Hazen stated, “HCA Healthcare has numerous examples from past hurricanes where our hospitals have recovered from major storms and become more productive than pre-storm performance. I believe we can produce similar results with these two hospitals in time as we move beyond the aftereffects of these most recent storms.”

2) Public Scrutiny of Health Insurers May Pressure Them to Ease Claim Denials

The major spotlight on the health insurance companies’ tactics to deny or delay reimbursements to providers may put pressure on them to ease up on the denials. This would be a boon to providers and healthcare facility operators like HCA to obtain quicker reimbursements with a little less hassle.

The public outcry could result in closer regulation of the health insurance industry and a higher payout to the providers who are actually providing the medical treatments. The recent decision by Elevance Health Inc. NYSE: ELV Anthem Blue Cross Blue Shield to nix its policy change limiting anesthesia reimbursements beyond certain time limits was arguably due to the public backlash.

3) Ambulatory Care Facilities Are a Cost-Effective Positive Trend

Ambulatory surgical centers (ASCs) are medical facilities that are more cost-effective, flexible, efficient, and patient-friendly. These freestanding facilities specialize in specific types of surgeries. Procedures can cost nearly 50% less at an ACS than at a hospital, with much less red tape and higher profit margins. Patients love them because they are more affordable and less expensive than hospitals, resulting in lower insurance co-payments. Most procedures are outpatient same-day discharge treatments.

HCA operates 187 full-scale hospitals and over 2,400 ambulatory care sites, including ASCs, urgent care, physician clinics, and emergency rooms. HCA plans to continue building out its ASCs. By the end of 2024, HCA will have added 600 new beds and 100 new outpatient facilities for a total of more than 2,600 facilities.

4) HCA Stock Is at a Critical Double Bottom Support Level 

A double bottom occurs when a stock rebounds off a floor and retests the level successfully as the stock rises to new swing highs. A triple bottom will be formed if the stock retests at the same level and bounces.

HCA formed bottom at $312.54 on May 23, 2024, before rebounding to $344.20 and pulling back down to retest the $312.54 on July 1, 2024. HCA rebounded to stage a rally to its all-time high of $417.14 by October 18, 2024. HCA shares fell 25% from the peak to again retest the $312.54 support level, which is also an inverse cup lip line support. The daily RSI is attempting to curl back up at the 25-band. Fibonacci (Fib) pullback support levels are at $312.54, $298.81, $279.14, and $261.31.

Actionable Options Strategies: Bullish investors can consider using cash-secured puts to buy HCA at the Fib pullback support levels for entry and write covered calls to execute a wheel strategy for income in addition to 0.84% dividend yield.