Despite the broader market reeling under rising recessionary fears caused by the Fed’s aggressive interest rate hikes, hospital stocks remain relatively stable due to near-inelastic demand for medical products and services. Additionally, an aging population, an increase in the prevalence of chronic diseases, and technological advancements are expected to expand the industry further.

Amid high prices and overwhelming demand, national healthcare spending in the United States is predicted to rise by $370 billion over the next five years. Moreover, according to Research and Markets, the global hospital information systems market is expected to grow at a CAGR of 8.6% until 2026.

Given the backdrop, it could be wise to invest in fundamentally strong hospital stock HCA Healthcare, Inc. (HCA) for the long term. However, Cano Health, Inc. (CANO) could be best avoided, given its weak financials.

Stock to Buy:

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. In addition, the company operates in two geographically organized groups: The National and American.

In terms of forward Price/Sales, HCA is currently trading at 1.10x, 17.2% lower than the industry average of 2.50x. Its forward EV/EBIT multiple of 4.45 is 71.9% lower than the industry average of 15.81.

HCA’s trailing-12-month CapEx/Sales of 7.13% is 53.7% higher than the 4.64% industry average. Its trailing-12-month EBITDA margin of 20.02% is 563.2% higher than the 3.02% industry average.

HCA’s Medicaid revenue came in at $797 million third quarter that ended September 30, up 15.2% year-over-year. Moreover, its total assets came in at $51.48 billion for the period ended September 30, 2022, compared to $50.74 billion for the period ended December 31, 2021.

Analysts expect HCA’s revenue to increase 4% year-over-year to $62.76 billion in 2023. Its EPS is estimated to grow 7% year-over-year to $18.21 in 2023. Over the past six months, the stock has gained 14.6% to close the last trading session at $234.74.

HCA’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. 

HCA has a B for Value, Stability, Sentiment, 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.

Stock to Avoid:

Cano Health, Inc. (CANO)

CANO operates as a primary care medical services provider in the United States and Puerto Rico. The company owns and operates medical centers enabled by CanoPanorama, a health management technology-powered platform.

CANO’s trailing-12-month CapEx/Sales of 1.97% is 57.6% lower than the 4.64% industry average. Its trailing-12-month EBITDA margin of negative 0.71% is lower than the 3.02% industry average.

CANO’s net loss came in at $112.01 million for the third quarter that ended September 30, up 72.7% year-over-year. Moreover, its loss per share came in at $0.23, up 64.3% year-over-year. Also, its total assets came in at $304.97 million for the period ended September 30, 2022, compared to $317.24 billion for the period ended December 31, 2021.

CANO’s EPS is expected to decrease by 281.8% year-over-year to negative $0.42 in 2022. Over the past year, the stock has lost 84.3% to close the last trading session at $1.50.

CANO’s overall D rating equates to a Sell in our POWR Ratings system. It has an F grade for Stability and Sentiment and a D for Momentum and Quality. The stock is ranked #10 in the same industry.

We’ve also rated CANO for Growth and Value. Get all the CANO ratings here.

HCA shares were trading at $236.57 per share on Wednesday afternoon, up $1.83 (+0.78%). Year-to-date, HCA has declined -7.19%, versus a -14.48% rise in the benchmark S&P 500 index during the same period.

About the Author: Rashmi Kumari

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions. More...

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