HCA Earnings: Solid Results Bolster 2023 View

Narrow-moat HCA Healthcare HCA turned in better-than-anticipated second-quarter results that benefited from improving medical utilization trends and easing labor cost pressures. These factors contributed to a moderate increase in management’s 2023 outlook. However, our expectations remain roughly in line with that outlook, and our $260 fair value estimate is unchanged. The shares traded down toward our fair value estimate after the release, as investors may have been hoping for even better results after recent insurer comments about increasing medical utilization.

In the quarter, increasing medical utilization did help revenue grow at a decent clip. The bottom line grew but only when including share repurchases. Revenue rose 7% year over year on a 4% increase in equivalent admissions and a 3% increase in revenue per equivalent admission, as an easier comparable period and the return of higher-acuity surgeries helped the latter especially. Adjusted EBITDA was flat year over year, though, as pressures on other expenses (such as professional fees) outweighed easing labor cost concerns. Helped by recent share repurchases, adjusted EPS grew 5% to $4.29, slightly above FactSet consensus of $4.25.

Overall, these positive trends are setting HCA up for a stronger year than initially anticipated, and management increased its 2023 outlook somewhat for revenue, EBITDA, and EPS. The new EPS outlook range of $17.70-$18.90 represents an 8% increase at the midpoint, up about 200 basis points from the previous outlook. Our assumptions for 2023 remain within management’s new guidance range and slightly above the midpoint. Although we continue to expect ongoing improvement in medical utilization, labor costs, and reimbursement rates with third-party payers, those views are already largely captured in our near- and long-term expectations for HCA.