Why are hedge funds bullish on HCA Healthcare, Inc. (HCA)?

We recently made a list Top 10 Health Insurance Stocks to BuyIn this article, we’ll take a look at where HCA Healthcare, Inc. (NYSE:HCA) stacks up against other health insurance stocks.

Healthcare Market: What Does the Future Bring?

The year 2023 presented a significant challenge for the healthcare sector as investors adjusted their portfolios to a higher interest rate environment. This led to the sector underperforming compared to other segments of the stock market, particularly technology and communications services. Understandably, the disruptive environment has created some anxiety and pessimism about the future. Deloitte’s annual Health Care Outlook Survey reveals that only 3% of health system CEOs and 7% of health plan CEOs have a “positive” outlook for 2024, down from 15% and 40%, respectively, a significant year-over-year decline.

On the brighter side, the aging baby boom generation, which makes up 20% of the U.S. population, is driving growing demand for healthcare services and products, such as insurance, pharmaceuticals, medical devices, and hospital care. Projections point to significant growth in healthcare spending over the next decade. In the U.S., the Centers for Medicare & Medicaid Services projects a 5.6% annual increase in national healthcare spending from 2023 to 2032. Similarly, in OECD countries, healthcare spending as a percentage of GDP is expected to increase from 8.8% to 10.2% by 2030. In addition to aging populations, a growing middle class in emerging markets will also contribute to increased demand for healthcare services.

One of the biggest news stories of the year was the rise of GLP-1 drugs as weight-loss treatments, which led to significant outperformance of leading developers Eli Lilly & Company and Novo Nordisk (NVO) compared to their peers. On the other hand, many companies have experienced a major hit due to a post-COVID revenue decline after vaccine and drug sales approached $100 billion in 2022, making for difficult year-over-year comparisons. On another front, BlackRock, Inc. is forecasting that the healthcare sector will have the highest year-over-year 12-month growth in forward earnings of any sector, with sales growth trailing only consumer discretionary and information technology.

State of health insurance

Health insurance remains an important issue, especially in the United States. In 2022, more than 300 million Americans, or about 92% of the population, had health insurance. While the U.S. health care system includes a mix of public and private insurers, private insurance is at the top as the dominant form of insurance. In the same year, more than half of insured people received private insurance through their employer, while about 36% were covered by public insurance programs such as Medicare and Medicaid.

The story continues

As of 2023, the U.S. health insurance exchanges, created by the Affordable Care Act of 2014, are entering their tenth year of operation. Throughout that decade, the individual market has remained interesting, to say the least, experiencing annual fluctuations in insurer participation, pricing, and plan options. According to McKinsey, consumer engagement has grown significantly by 25% from 2020 to 2022, reaching about 16 million participants, consistent with expanded subsidies introduced by the American Rescue Plan Act of 2021.

The global health insurance industry is poised for significant growth in the coming years. According to the report, the global health insurance market is projected to register a compound annual growth rate (CAGR) of 9.9% from 2022 to 2030, reaching a market value of $5.28 trillion by 2030.

Insurance house, car and family health live concept. Insurance agent presents toys that symbolize insurance.

Our methodology

To compile our list of the best health insurance stocks to buy, we scoured multiple ETFs and online rankings. Then, we analyzed Insider Monkey’s database through the first quarter of 2024 to pick the stocks that were most widely held by hedge funds. The companies below, ranked by the number of hedge funds that own their stock, provide health insurance services in the United States and/or internationally. Why are we interested in what hedge funds are doing? The reason is simple: Our research has shown us that we can outperform the market by mimicking the top stock picks of top hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A team of healthcare workers dressed in lab coats and masks meet on a hospital ward.

HCA Healthcare, Inc. (NYSE:HCA)

Number of hedge fund holders: 72

Founded in 1968, HCA Healthcare, Inc. (NYSE:HCA) is a leading provider of healthcare services, known for its extensive network of owned and operated 182 hospitals and approximately 2,300 outpatient facilities. These facilities include surgery centers, emergency rooms, urgent care centers and physician clinics.

HCA Healthcare, Inc. (NYSE:HCA) reported a strong first quarter of 2024, with strong financial results and significant growth in hospital admissions, surgeries and emergency room visits. Despite a decline in outpatient surgery revenue, the company’s adjusted earnings per share rose to $5.36, up nearly 9%. Adjusted EBITDA rose to $3.35 billion, up 5.7% year over year.

In light of these developments, TD Cowen has revised its financial outlook for HCA, lowering its price target to $360 from $371 previously, while maintaining its Buy rating. This revision, which takes into account first-quarter results and a perceived weakening in the trend environment, prompts TD Cowen to adjust its outlook for HCA Healthcare, Inc.’s (NYSE:HCA) EBITDA in 2024 and 2025, as well as its 2025 enterprise value, which is EBITDA minus corporate net income.

In the first quarter of 2024, 72 hedge funds held a position in HCA Healthcare, Inc. (NYSE:HCA). The fund with the largest stake was First Eagle Investment Management with 4.5 million shares, or 3.41% of its portfolio.

In its Q1 2024 investor letter, Diamond Hill Large Cap Strategy announced the following information regarding HCA Healthcare, Inc. (NYSE:HCA):

Total HCA takes 5th place on our list of the best health insurance stocks to buy. You can visit Top 10 Health Insurance Stocks to Buy to see other health insurance stocks that are on the hedge fund radar. While we recognize the potential of HCA as an investment, our belief is based on the belief that AI stocks are more promising in terms of delivering higher returns and doing so in a shorter time frame. If you are looking for AI stocks that are more promising than HCA but are trading at less than 5 times earnings, check out our report on cheapest AI action.

Read more: Analyst sees new $25 billion ‘opportunity’ for NVIDIA AND Jim Cramer Recommends These 10 Stocks for June.

Disclosure: None. This article was originally published on Insider Monkey.