Finding the right stocks to support a well-balanced portfolio can be a tricky endeavor, but by following some standard ground rules an investor can make the experience extremely effective. First, make sure there's a good mix of companies across various sectors. Second, ensure to support the portfolio with companies that have a solid track record of innovative products and services. Third, research the future of a company to ensure it has a pathway to new and growing revenue. And if these characteristics can be combined with that of a company paying dividends, all the better.
HCA Healthcare (HCA -0.65%) is a company that checks all the boxes. And coming off of its latest earnings beat, the current stock price offers investors an opportunity to grab some shares at a discount to the average analyst price target.
HCA's robust footprint
HCA is a leading provider of healthcare services at 185 hospitals and over 2,000 care sites in 20 states within the U.S., and across the pond in the U.K. In addition to its compensated services, the company boasts free care provided as part of charity. This includes discounted services, and other uncompensated services, resulting in an out-of-pocket spend of $3.4 billion toward these acts of giving back to the community in 2020.
Heading into the third quarter of this year, the company was coming off of a post-pandemic rebound in healthcare services during Q2. Which was driven by rescheduled appointments and both inpatient and outpatient procedures as a result of the pandemic. The second quarter saw revenue of $14.4 billion backed by a 17.5% increase in same facility admissions, while same facility equivalent admissions climbed by 26%. Revenue for the first half of the year compared to the first half of 2020 was up by 22%, from $24 billion to $28.5 billion. These numbers led to the company raising its full-year guidance for revenue and earnings.
An earnings beat and raised full-year guidance
Third-quarter results were announced on Oct. 22, leading HCA to once again raise its guidance. The company raised full-year guidance on revenue to a range from $58.7 billion to $59.3 billion. The guidance was a 2.6% average increase from the previous range of $57 billion to $58 billion, which had already been raised from the first quarter.
Revenue for the quarter came in at $15.2 billion, representing a 5.5% sequential quarter increase, and a jump of 14.3% over the $13.3 billion brought in during the same quarter last year. The rise in revenue led to a whopping 260% increase in net income per diluted share, compared to Q3 2020, going from $1.95 per share to $7 per share. Earnings per share came in at $4.57, up 138% over the same period last year, and beat consensus estimates by $0.47. This led the company to once again raise its full-year guidance -- on earnings per share -- to a range of $17.20 to $17.80, an average increase of 4.8% over the previous midpoint of $16.70 per share.
The stock price and analyst price targets go in opposite directions
Not everyone was thrilled by the numbers reported by HCA. On the surface, they looked tremendous, with growing revenue, increased earnings, and full-year raised guidance for a second consecutive quarter. But what caught the attention of some investors during the call was that the midpoint of the revenue guidance reflected a decline on a sequential quarterly basis. Meaning year-over-year growth was strong but the momentum from the second quarter to the third may be declining.
This helped drive the stock price down 7%, from a close of $260 on Oct. 21 to its price of $241 on Oct. 26. For long-term investors, this may be the dip they've been looking for. All signs point to growth and increased earnings for HCA. Meanwhile, analysts including Raymond James, Goldman Sachs, and Citigroup have all upped their price targets in the past week to a range of $274 to $320, with the current price offering investors a potential 33% discount to the high target.
Throw in a modest dividend yield of 0.76% -- slightly lower than the average S&P 500 healthcare service provider yield of 1.75% -- that pays $1.92 per share annually, and you've got the makings of a healthcare giant to buy after an earnings beat.