According to data released by the Commerce Department, the Consumer Price Index (CPI) increased 6.5% year-over-year last month, lower than 7.1% in November. Inflation declined for the sixth consecutive month after peaking at 9.1% annually in June. Therefore, the Federal Reserve will likely lower its interest rate hike at its upcoming FOMO meeting.
Investors broadly expect the Fed to increase rates by 25 basis points (bps) this Wednesday, a downshift from a 50-bps hike in December. Fed Governor, Christopher Waller, has joined other policymakers in backing the slowdown in the next rate hike to 25 bps but anticipates continued tightening going forward to curb inflation and bring it close to the central bank’s 2% target.
The tightening of monetary policy is expected to lead to an economic slowdown this year. Moreover, the economy rose by 2.9% in the last three months of 2022, surpassing the consensus forecast of 2.6%. But the growth declined from 3.2% in the third quarter.
The World Bank expects growth in the United States to drop to 0.5% this year, 1.9 percentage points below prior forecasts and the weakest performance outside of recessions since 1970.
Given the uncertain economic conditions, it could be wise to put fundamentally strong stocks HCA Healthcare, Inc. (HCA), Yum! Brands, Inc. (YUM) and DocuSign, Inc. (DOCU) on your radar this week. These stocks have been recently upgraded in our proprietary POWR Ratings system.
HCA Healthcare, Inc. (HCA)
HCA is a healthcare services company that owns and operates general and acute care hospitals offering medical, surgical, emergency, and outpatient services. The company operates more than 182 hospitals, including 175 general and acute care hospitals, five psychiatric hospitals, and two rehabilitation hospitals; 125 freestanding surgery centers; and 21 freestanding endoscopy centers.
On December 13, 2022, HCA announced its enterprise-wide adopted Enhanced Surgical Recovery (ESR) program. The ESR program is a patient-centered, research-based, and multidisciplinary approach to surgical recovery and has been adopted by 167 HCA Healthcare facilities.
HCA’s trailing-12-month EBITDA margin of 19.96% is 435.7% higher than the 3.73% industry average. Likewise, its trailing-12-month net income margin of 9.37% compares to the industry average of negative 5.61%.
For the fiscal fourth quarter ended December 31, 2022, HCA reported revenue of $15.50 billion, compared to $15.06 billion in the prior-year quarter. Its adjusted EBITDA totaled $3.18 billion, compared to $3.15 billion in the fourth quarter of 2021. In addition, net income attributable to HCA was $2.08 billion and $7.28 per share, up 14.7% and 26.6% year-over-year, respectively.
Analysts expect HCA’s revenue and EPS for the current fiscal year (ending December 2023) to increase 4.2% and 5.7% year-over-year to $62.77 billion and $17.85, respectively. The company’s revenue and EPS for the next year are estimated to grow 5.9% and 14.9% from the prior year to $66.44 billion and $20.50, respectively.
Over the past six months, the stock has gained 24.5% to close the last trading session at $254.77.
HCA’s POWR Ratings reflect this promising outlook. On January 25, 2023, the stock’s overall rating was upgraded to an A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
HCA has an A grade for Sentiment and a B for Value, Stability, and Quality. Within the Medical – Hospitals industry, it is ranked first among 12 stocks. Click here for the additional POWR Ratings for Momentum and Growth for HCA.
Yum! Brands, Inc. (YUM)
YUM operates and franchises quick-service restaurants worldwide. The company operates through four segments: the KFC Division; the Taco Bell Division; the Pizza Hut Division; and the Habit Burger Grill Division.
On January 10, 2023, Pizza Hut announced the return of its famous 16” New York-style pizza, “The Big New Yorker,” after its initial launch 24 years ago. The iconic pizza will be available at participating restaurants nationwide starting February 1, 2023. The relaunch of this iconic fan-favorite pizza is expected to boost the company’s revenue streams.
Also, on October 18, 2022, Pizza Hut entered the handheld category with its latest innovative offering, Pizza Hut Melts™. They are great for a quick savory snack, lunch, or on-the-go dinner for just $6.99 at participating restaurants. The launch of a new product offering might boost the company’s profitability.
YUM’s trailing-12-month gross profit margin of 48.19% is 35.5% higher than the 35.58% industry average. Also, its trailing-12-month EBITDA margin of 33.40% compares to the industry average of 11.11%. Likewise, the stock’s trailing-12-month net income margin of 19.13% is 269.3% higher than the industry average of 5.18%.
For the fiscal third quarter ended September 30, 2022, YUM’s revenues totaled $1.64 billion, compared to $1.61 billion in the previous year’s quarter, while revenues from Taco Bell Division was $568 million, up 6.4% year-over-year. Its operating profit was $546 million, compared to $527 million in the year-ago period.
The consensus EPS estimate of $5.17 for the fiscal year (ending December 2023) indicates a 15.6% year-over-year improvement. Likewise, the consensus revenue of $7.16 billion for the ongoing year indicates a rise of 6.1% from the prior year.
Shares of YUM have gained 6.3% over the past six months to close the last trading session at $128.13.
YUM’s strong fundamentals are reflected in its POWR Ratings. On January 20, the stock’s overall rating was upgraded to B, which equates to a Buy in our POWR Ratings system.
YUM has an A grade for Quality and a B for Sentiment. Among the 45 stocks in the B-rated Restaurants industry, it's ranked #17.
Beyond what is stated above, we have also rated YUM for Momentum, Growth, Value, and Stability. Get all YUM ratings here.
DocuSign, Inc. (DOCU)
DOCU provides electronic signature software internationally. The company offers e-signature solutions, CLM, Gen for Salesforce, Negotiate for Salesforce, analyzer, CLM+, and guided forums for various consumer applications. It serves enterprise, commercial and small businesses and sells its products through direct, partner-assisted, and web-based sales.
DOCU’s trailing-12-month gross profit margin of 48.19% is 35.5% higher than the 35.58% industry average. Also, its trailing-12-month EBITDA margin of 33.40% compares to the industry average of 11.11%. Likewise, the stock’s trailing-12-month net income margin of 19.13% is 269.3% higher than the industry average of 5.18%.
DOCU’s total revenue increased 18.3% year-over-year to $645.46 million in its fiscal third quarter ended October 31, 2022. Its gross profit increased 20.1% year-over-year to $515.92 million. In addition, the company’s subscription revenue was $624.05 million, up 18.1% year-over-year.
Analysts expect DOCU’s revenue for its fiscal year ending January 2024 to come in at $2.69 billion, representing a 7.8% rise year-over-year. The company’s EPS is expected to increase 11.5% year-over-year in the same year to $2.15. The company has an impressive earnings surprise history as it surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 13.7% over the past month to close its last trading session at $59.25.
DOCU’s fundamental strength is reflected in its POWR Ratings. The stock was upgraded on January 25 to an overall rating of B, which translates to Buy in our proprietary POWR Ratings system.
DOCU is also rated an A in Growth and a B in Quality. Within the Software – SAAS industry, it is ranked #6 of 25 stocks.
Click here to access additional POWR Ratings for Value, Momentum, Sentiment, and Stability for DOCU.
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HCA shares were unchanged in premarket trading Monday. Year-to-date, HCA has gained 6.17%, versus a 6.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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