2 Hospital Stocks Rated Strong Buy: HCA Healthcare and Select Medical Holdings

The COVID-19 pandemic brought chaos to  the whole world and even hospital stocks were not spared in the panic stock selloffs seen in March 2020. Healthcare providers usually witness steady demand irrespective of macroeconomic vagaries. But the pandemic led to an increase in costs due to the need for record levels of intensive care. Also,  many patients postponed their elective surgeries last year, representing a significant business loss for  U.S. hospitals, which are largely profit-based.

Because  the ongoing coronavirus vaccine deployment is renewing people’s confidence in again seeking hospital care for non-COVID-19 maladies, the healthcare industry should now witness a gradual recovery. Resilience, persistence and agility are expected to be key to recovery for health care providers. Moreover, a proposed  third U.S. stimulus check, which could be released  in March, might also prove to be beneficial to r the healthcare sector.

Against this backdrop, we believe it is wise to add HCA Healthcare, Inc. (HCA) and Select Medical Holdings Corporation (SEM) to one’s portfolio. These stocks are strategically positioned to deliver steady returns in the coming months.

HCA Healthcare, Inc. (HCA)

Headquartered in Nashville, Tennessee, HCA operates as a health care services company, with  general, acute care hospitals that offer medical and surgical services, including inpatient care, intensive care, cardiac care, diagnostic, and emergency services; and outpatient services, such as outpatient surgery, laboratory, radiology, respiratory therapy, cardiology, and physical therapy services.

For the fourth quarter ended December 31, 2020 the company’s revenue climbed 5.7% year-over-year to $14.29 billion. This impressive performance was driven mainly by high inpatient volumes along with solid cost management. The company’s net income also increased more than 33% year-over-year to $1.43 billion, while its  EPS increased 33.7% year-over-year to $4.13.

Analysts expect HCA’s revenue to increase 33.3% for the quarter ending June 30, 2021 and 6% in 2021. The company’s EPS is expected to grow 40.3% for the quarter ending March 31, 2021, 11.1% next year and at a rate of 11.3% per annum over the next five years. Over the past six months, the stock rallied 37.4% to close yesterday’s trading session at $178.94.

In January,  HCA announced that it had formed a consortium of prominent public and private research institutions — including the federal Agency for Health Research and Quality (AHRQ), Johns Hopkins University and Duke University —  to improve patient outcomes and public knowledge with the help of its vast data on COVID-19 hospital care. HCA also announced a joint venture with A Plus International Inc. in  January to expand access to personal protective equipment (PPE) by manufacturing surgical and procedure masks in the United States.

HCA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

The stock has a grade of A for Growth and B for Value, Stability, and Quality.

We have also rated HCA for Momentum and Sentiment. Get all of HCA’s ratings here.

In the 10-stock, A-rated  Medical - Hospitals Industry, the HCA is ranked #1.

Select Medical Holdings Corporation (SEM)

Founded in 1996, SEM is one of the largest providers of post-acute care, operating 99 critical illness recovery hospitals in 28 states. The company's segments include specialty hospitals, outpatient rehabilitation, Concentra and Other. SEM’s joint venture subsidiary, Concentra, operates 517 occupational health centers in 41 states.

SEM  is expected to release its fourth quarter and full-year  financial results ended December 31, 2020 on February 25.Its  net operating revenues have increased 15.5% sequentially to $1.42 billion for the third quarter (ended September 30, 2020). In the rehabilitation hospital segment, its net operating revenues increased 8.5% year-over-year to $188.1 million. And its net income increased 15.2% year-over-year to $51.65 million. Its adjusted EPS of $0.56 increased 69.7% year-over-year.

Analysts expect SEM’s revenue to increase 2.6% for the quarter ended December 31, 2020 and 6.5% in 2021. The company’s EPS is expected to grow 5.4% for the quarter ending March 31, 2021 and at a rate of 18.5% per annum over the next five years. SEM has an impressive earnings surprise history; it beat consensus EPS estimates in each of the trailing four quarters.

In October,  SEM and  the Cleveland Clinic Rehabilitation Hospitals, which is a joint venture partnership between SEM and Cleveland Clinic, were recognized as the Best Physical Rehabilitation Centers in Ohio by the Newsweek Magazine. And in September, SEM announced that its wholly owned subsidiary Select Medical Corporation has entered into a joint venture agreement with Rush University System for Health (RUSH) to manage operations of a critical illness recovery hospital, inpatient rehabilitation hospital and 63 physical therapy centers throughout the greater Chicago and Northwest Indiana region.

The stock has gained 16.2% over the past year. It is currently trading 11.8% below its 52-week high of $31.30, which it hit on January 8.

SEM’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A which equates to Strong Buy in our proprietary rating system. SEM also has a grade of A for Growth and B for Value, Stability and Sentiment.

In addition to the POWR Ratings grades I have just highlighted you can see SEM’s ratings for Momentum and Quality here.

The stock is ranked #2 in the same industry.

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HCA shares were trading at $175.84 per share on Tuesday afternoon, down $3.10 (-1.73%). Year-to-date, HCA has gained 6.92%, versus a 4.45% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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