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An Upgrade for Undervalued HCA Healthcare

We've assigned the largest hospital system in the U.S. a narrow economic moat and find shares attractive today.


Jake Strole: We've taken a fresh look at the U.S. acute care industry and have come away a bit more constructive in our outlook, particularly in regard to HCA Healthcare. We think the firm has been able to dig a narrow economic moat underpinned by scale-based advantages that make the company one of the most efficient operators in the space.

HCA is the largest hospital system in the country and is expected to generate over $45 billion in net revenue during 2018. While this accounts for roughly 5% of hospital expenditures nationally, we think the competitive dynamic is best analyzed at the local level, rather than at the national or even state level. Though this lens HCA's competitive advantage becomes clear, as the firm boasts a consolidated 25% market share when measured against its direct competitors. HCA is the leader in many of these geographies, reporting market shares that eclipse 35% in its largest markets. As a result, the firm can wield pricing power, frequently earning 4% to 5% annual reimbursement updates from commercial payers, which account for over half of the company's sales.

Jake Strole does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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