HCA Healthcare vs. Universal Health Services: Which Stock is a Better Buy?

The Pandemic-driven surge in demand for hospital services and rising need for elective surgeries with the easing of concerns related to COVID-19 have been driving the hospital industry’s growth. The global acute hospital care market is expected to grow at a 7.9% CAGR to reach $391.05 billion by 2027. So, both HCA Healthcare, Inc. (HCA) and Universal Health Services, Inc. (UHS) should benefit.

HCA and UHS are two prominent healthcare sector participants offering medical care facilities. HCA operates general, acute care hospitals and offers medical and surgical services, medical education, physician resource center, and training programs. In comparison, UHS operates acute care hospitals and outpatient and behavioral health care facilities that offer general and specialty surgery, internal medicine, obstetrics, emergency room care, radiology, oncology, diagnostic care, coronary care, pediatric services, pharmacy services, and/or behavioral health services. It also provides commercial health insurance services.

HCA has gained 38% in the past year but UHS has lost 3%.  Which of these stocks is a better pick now? 

Click here to checkout our Healthcare Sector Report for 2022

Recent Financial Results

HCA’s revenues for its fiscal 2021 fourth quarter ended December 31, 2021, increased 5.4% year-over-year to $15.06 billion. The company’s pre-tax income came in at $2.59 billion, indicating a 24.8% year-over-year improvement. Its net income came in at $1.81 billion for the quarter, up 27.2% from the year-ago period. HCA’s EPS increased 39.2% year-over-year to $5.75. As of December 31, 2021, the company had $1.45 billion in cash and cash equivalents.

For its fiscal 2022 second quarter ended September 30, 2021, UHS’ net revenues increased 8.4% year-over-year to $3.16 billion. The company’s income from operations came in at $314.81 million, down 10% from the prior-year period. UHS’ adjusted net income came in at $224.13 million, indicating a 9.1% year-over-year decline. Its adjusted EPS decreased 7.3% year-over-year at $2.77. The company had $189.74 million in cash and cash equivalents as of September 30, 2021.

Past and Expected Financial Performance

HCA’s revenue and EBITDA have increased at CAGRs of 8% and 12%, respectively, over the past three years. The company’s total assets have grown at a CAGR of 9% over the past three years.

HCA’s EPS is expected to increase 8.5% year-over-year in fiscal 2022, ending December 31, 2022, and 9.4% in fiscal 2023. Its revenue is expected to grow 4.5% year-over-year in fiscal 2022 and 5.3% in fiscal 2023. The company’s EPS is expected to grow at a rate of 14.4% per annum over the next five years.

In comparison, UHS’ revenue and EBITDA have increased at CAGRs of 5.3% and 5.5%, respectively, over the past three years. The company’s total assets have grown at a CAGR of 4.5% over the past three years.

Analysts expect UHS’ EPS to increase 5.8% from the prior-year period in fiscal 2022, ending December 31, 2022, and 4.1% in fiscal 2023. Its revenue is expected to rise 8.2% year-over-year in fiscal 2022 and 3% in fiscal 2023. Analysts expect the company’s EPS to grow at an 8.2% rate per annum over the next five years.

Valuation

In terms of forward EV/Sales, HCA is currently trading at 1.82x, 54.2% higher than UHS’ 1.18x. In terms of forward EV/EBITDA, UHS’ 7.73x compares with HCA’s 8.69x.

Profitability

HCA’s trailing-12-month revenue is almost 4.7 times UHS’. HCA is also more profitable, with a 6.9% levered free cash flow versus UHS’ negative returns.

Furthermore, HCA’s ROE, ROA and ROTC of 352.5%, 12.3%, and 16.3% compare with UHS’ 17.1%, 7.1%, and 9%, respectively.

POWR Ratings

While HCA has an overall A grade, which translates to Strong Buy in our proprietary POWR Ratings system, UHS has an overall C grade, equating to a Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

Both HCA and UHS have a B grade for Value, which is in sync with their lower-than-industry valuations. HCA has a 1.21x forward Price/Sales, 77.7% lower than the 5.42x industry average. UHS’ 0.86x forward Price/Sales is 84.1% higher than the industry average of 5.42x.

HCA has a B grade for Sentiment, consistent with analysts’ higher earnings estimates for the company. HCA’s EPS is expected to reach $4.50 in the fiscal 2022 second quarter ending June 30, 2022, representing a 2.9% rise from the prior-year period. UHS’ C grade for Sentiment reflects analysts’ lower estimates on the company’s earnings. Analysts expect the company’s EPS to be $3.15 in the fiscal 2022 second quarter ending June 30, 2022, indicating a 16.3% year-over-year decline.

Of the 13 stocks in the C-rated Medical - Hospitals industry, HCA is ranked #1, while UHS is ranked #6.

Beyond what we have stated above, our POWR Ratings system has also rated HCA and UHS for Growth, Stability, Quality, and Momentum. Get all HCA ratings here. Also, click here to see the additional POWR Ratings for UHS.

The Winner

Rising demand for advanced treatment facilities should benefit both HCA and UHS. However, higher profitability makes HCA a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Medical - Hospitals industry.

HCA shares rose $0.16 (+0.07%) in after-hours trading Wednesday. Year-to-date, HCA has declined -5.89%, versus a -11.16% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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