What Happened?
Shares of hospital operator HCA Healthcare (NYSE: HCA) fell 3.3% in the afternoon session after its second-quarter earnings report revealed a drop in surgical procedures and shrinking operating margins, which overshadowed a beat on revenue and profit.
The hospital operator reported revenue of $18.61 billion and an adjusted profit of $6.84 per share, both of which surpassed Wall Street's forecasts. HCA also raised its full-year guidance for revenue and earnings. However, investors appeared to focus on the details behind the headline numbers. The company’s operating margin declined to 13% from 15.8% in the same quarter last year. Furthermore, the report showed a decrease in key surgical procedures, with same-facility inpatient surgeries falling by 0.3% and outpatient surgeries dropping by 0.6%. These signs of operational weakness seemed to concern investors more than the headline beats.
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What Is The Market Telling Us
HCA Healthcare’s shares are not very volatile and have only had 4 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The previous big move we wrote about was 9 days ago when the stock dropped 3% on the news that the company's stock was downgraded by BofA Securities to 'Neutral' from 'Buy' due to concerns over recent legislation.
The downgrade reflects worries about the potential impact of the "One Big Beautiful Bill Act," which is expected to bring significant funding cuts to Medicaid and the Affordable Care Act (ACA) exchanges.
Analysts at BofA Securities noted that these cuts could create an annual 2% headwind for HCA through 2030. The legislation is anticipated to lead to lower patient volumes and higher bad debt for hospitals as enrollment in these programs declines. In response to these concerns, BofA lowered its price target for HCA to $394 from $410. The move by the influential Wall Street firm has prompted investors to adopt a more cautious stance on the nation's largest for-profit hospital operator.
HCA Healthcare is up 11.4% since the beginning of the year, but at $331.69 per share, it is still trading 20.2% below its 52-week high of $415.54 from October 2024. Investors who bought $1,000 worth of HCA Healthcare’s shares 5 years ago would now be looking at an investment worth $2,646.
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