We covered the private hospital operator a few months ago here, flagging the expansion in its earnings multiple as the primary driver of the share price, prompting us to turn more neutral. The stock fell on queue, and we were left holding our 5% position. They’ve now recovered strongly, so, what’s changed between May and now?
They recently reported a stronger-than-expected 2Q25 result, with revenue up 6.4% driving a solid beat in terms of earnings per share (EPS) for the quarter, up 24.4% to $6.84 relative to consensus of $6.24. They also mildly increased their FY guidance, now expecting revenue of $74 billion–$76 billion, up from prior guidance of $72.8 billion–$75.8 billion. Profit was also guided higher, forecasting $6.11 billion–$6.48 billion (or $25.50–$27.00 per share), up from $5.85 billion–$6.29 billion (or $24.05–$25.85). This implies momentum is firming, with continued demand for procedures, improved patient mix, and manageable cost pressures even in the face of tariffs.
So, unlike the last time we flagged HCA, where it was all PE expansion driving the share price, this time around, there has been a notable improvement in their financial performance. As we’ve written in the past, this is a relatively low growth business, generally trading between ~12-15x earnings over time. Since July, the share price has rallied ~20% against an earnings bump of ~3% at the mid-point of new guidance, once again highlighting the changes in it’s earnings multiple as the real driven (i.e. sentiment). HCA currently 14.6x, around 1 standard deviation above it’s 5-year average, putting it on the expensive side of recent history.
- While we retain our neutral stance on HCA around $US400, we do think the momentum is improving in the business and HCA can now justify a valuation at the upper end of its current range.
MM remains long HCA in the International
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