HCA

Publicly traded companies mentioned herein: HCA Healthcare Inc (HCA), Tenet Healthcare Corp (THC)

Highlights

The presenter is long shares of HCA Healthcare (HCA) at ~$122 and views the recent weakness as a buying opportunity. Late Friday, Dec 14, 2018, US District Court Judge Reed O'Connor of Texas issued a decision that struck down the entire Affordable Care Act (ACA) on the grounds that its individual mandate was/is unconstitutional. The ruling sank hospital and managed care stocks to start the week (12/17); however, in the presenter’s opinion, the coverage of the issue is lacking in rigor, and it is unlikely that the ACA will ultimately be found to be unconstitutional by the Supreme Court. Regardless, the reaction by the Street and investors is overblown, as it fails to consider both the actual impact of the ACA being overturned, and the fundamental strength of HCA’s business (via its dominant positions in core markets). From now until 2020, the presenter sees the potential for growth to exceed expectations, and 2020 earnings could be $12/share (vs the Street at $11.25). Within 12 months, the stock could trade up toward $180 (15x forward earnings); and, at just over 10x his number today, further downside risk should be limited.