Shares of HCA Healthcare (HCA) experienced a 6.9% drop on Tuesday morning, as increased costs overshadowed strong revenue figures, resulting in lower-than-expected earnings.
Healthcare Sector Outlook
The healthcare sector had an overall positive start to the day, with shares of Centene (CNC), Novartis (NVS), and Quest Diagnostics (DGX) all rising following the release of their optimistic financial reports. This was in contrast to the downward trend the sector has faced throughout the year.
HCA’s Earnings Disappointment
However, HCA had a less favorable outcome. Although the company’s revenue surpassed expectations, its earnings fell short, mainly due to unexpectedly high doctor expenses. Revenue for the quarter amounted to $16.2 billion, surpassing the consensus estimate of $15.8 billion among analysts tracked by FactSet. However, adjusted earnings before interest, taxes, depreciation, and amortization totaled $2.88 billion, below the FactSet consensus estimate of $2.93 billion.
Earnings and Outlook
HCA reported earnings of $3.91 per diluted share, missing the consensus estimate of $3.98 and marking a decline from the $3.93 earnings reported by the hospital chain in the previous year. Mizuho analyst Ann Hynes believes that investors may be overreacting to this earnings miss. In a research note released early Tuesday, Hynes stated, “Despite the reduced outlook which we attribute to the elevated physician costs, we view the sell-off as overdone based on the quality of Q3:23 earnings.”
Overall, HCA Healthcare’s latest earnings report highlights the challenge of balancing rising costs with revenue growth in the healthcare industry.
HCA Lowers Full-Year Guidance Due to Underperforming Joint Venture
HCA, one of the leading healthcare companies, has revised its full-year guidance, projecting lower earnings for the fiscal year. The company now expects diluted earnings to be in the range of $17.80 to $18.50 per share, down from its previous estimate of $17.70 to $18.90 per share. Similarly, HCA has adjusted its forecast for adjusted Ebitda to be between $12.3 billion and $12.6 billion, compared to the earlier projection of $12.3 billion to $12.8 billion.
The CEO of HCA, Sam Hazen, explained that the decline in earnings is primarily attributed to the underperformance of a joint venture called Valesco Physician Services, which focuses on physician staffing. Although most aspects of HCA’s business remained positive during the quarter, the results were adversely impacted by the performance of the Valesco venture, which fell short of expectations.
Unfortunately, the announcement did not provide any specific details regarding the performance of the joint venture. However, despite this setback, HCA observed an increase in utilization of its healthcare facilities compared to the same quarter last year. Same-facility admissions experienced a notable climb of 3.4%, while same-facility emergency room visits saw a surge of 3.5%. Additionally, same facility revenue per equivalent admission showed a growth of 3.6%.
With regards to stock performance, HCA shares have been relatively flat throughout the year, posting a modest gain of 0.4% as of the market close on Monday. In comparison, the S&P 500 increased by 9.8% during the same period. It is worth noting that HCA outperformed other healthcare stocks as the S&P 500 Healthcare sector index recorded a decline of 6.5%.
It is crucial for HCA to address the challenges posed by its underperforming joint venture while leveraging the positive aspects of its business to ensure long-term growth and success.