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HCA Holdings Stock: Out-Classing the Competition on Profit Margins

As various provisions of the Affordable Care Act kick in, the next year or so promises to be an uncertain time for healthcare providers, not to mention sick people. One hospital management company that stands well above its rivals is HCA Holdings (HCA), in the opinion of Joshua Raskin, who follows the stock for Barclays Capital. He assigns it an “overweight” rating in an industry on which he has a neutral assessment overall.

Raskin finds HCA far superior on one key yardstick, ebitda margin, which essentially measures the operating profit that a company is able wring out of each dollar of sales. As the next chart shows, HCA’s EBITDA margin has remained above 20% for the last three years, while competitors such as Health Management Associates (HMA) and Tenet Healthcare (THC) languish in the mid- to low teens.

HCA EBITDA Margin TTM Chart

HCA EBITDA Margin TTM data by YCharts

HCA’s strong margins have translated into spectacular growth in free cash flow, compared to the other two, since 2007. Strong free cash flow should help to inoculate HCA against a difficult operating environment for the industry. As Raskin explains: “This better positions the company to manage through additional Medicare or Medicaid cuts. Also, HCA is well positioned to benefit from healthcare reform in 2014, including competing for payment dollars based on quality outcomes.”

HCA Free Cash Flow TTM Chart

HCA Free Cash Flow TTM data by YCharts

Conrad de Aenlle, a contributing editor at YCharts, has covered investment and personal-finance topics for more than 20 years, writing for The New York Times, International Herald Tribune, Los Angeles Times, Bloomberg News, Institutional Investor, MarketWatch and CBS MoneyWatch. He can be reached at editor@ycharts.com.

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