Medical Stocks

HCA Holdings Inc. Analysis – Initial Coverage $HCA

220px-Hospital_Corporation_of_America_(logo)Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – July 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how HCA Holdings Inc. (HCA) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): HCA Holdings, Inc. is a holding company. The Company is a health care services company. The Company owns, manages or operates hospitals, freestanding surgery centers, diagnostic and imaging centers, radiation and oncology therapy centers, rehabilitation and physical therapy centers and various other facilities. The Company’s general, acute care hospitals provide a range of services to accommodate medical specialties, such as internal medicine, general surgery, cardiology, oncology, neurosurgery, orthopedics and obstetrics, as well as diagnostic and emergency services. The general, acute care hospitals also provide outpatient services, such as outpatient surgery, laboratory, radiology, respiratory therapy, cardiology and physical therapy. Outpatient and ancillary health care services are provided by the Company’s general, acute care hospitals, freestanding surgery centers, freestanding emergency care facilities, diagnostic centers and rehabilitation facilities.


To read the rest of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $91.18
MG Value $51.42
MG Opinion Overvalued
Value Based on 3% Growth $62.06
Value Based on 0% Growth $36.38
Market Implied Growth Rate 6.40%
Net Current Asset Value (NCAV) -$68.41
PEmg 21.30
Current Ratio 1.27
PB Ratio -5.21

Balance Sheet – March 2015

Current Assets $9,130,000,000
Current Liabilities $7,172,000,000
Total Debt $27,406,000,000
Total Assets $31,288,000,000
Intangible Assets $6,415,000,000
Total Liabilities $38,908,000,000
Outstanding Shares 435,300,000

Earnings Per Share

2015 (estimate) $5.10
2014 $4.16
2013 $3.37
2012 $3.49
2011 $4.97
2010 $2.76
2009 $2.44
2008 $7.13
2007 $0.00
2006 $0.00
2005 $3.19

Earnings Per Share – ModernGraham

2015 (estimate) $4.28
2014 $3.83
2013 $3.58
2012 $3.84
2011 $3.83
2010 $3.00

Dividend History
HCA Holdings Inc. does not pay a dividend.
Free Cash Flow


HCA Holdings Inc. does not qualify for either the Defensive Investor and the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, lack of dividends, insufficient earnings stability over the last ten years, and the high PEmg ratio.  The Enterprising Investor is concerned with the level of debt relative to the current assets and the lack of dividends.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a speculative attitude.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $3.83 in 2011 to an estimated $4.28 for 2015.  This level of earnings growth does not support the market’s implied estimate of 6.4% annual earnings growth over the next 7-10 years, and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value falling below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on HCA Holdings Inc. (HCA)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.



Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top