• Normalization is a fact despite the enormous scale of HCA Healthcare
• Post-pandemic catapult recovery slowdown has begun
• Medicare sequestration fees will affect future earnings

Operator of hospitals and Healthcare institutions HCA Healthcare (NYSE: HCA) the stock has fallen this year (-25%) and underperformed the payers. Apparently not all healthcare stocks are a safe haven in a declining market fueled by recession fears. The payers, including health insurers, like: Humana (NYSE: HUM), Aetna (NYSE: CVS), UnitedHealthcare Group (NYSE:UNH)and Cigna (NYSE: CI) are all still in the mood for 2022. This may be due to the vertically integrated evolution of healthcare as payers merge with providers to create their own standalone healthcare ecosystems. HCA is the world’s largest hospital owner and operator with 182 hospitals and nearly 2,200 outpatient care locations, including surgery centers, freestanding emergency rooms, emergency care facilities and physician clinics.

HCA Kryptonite Operator

In addition to being a pure healthcare provider, HCA happens to dominate the one area that integrated healthcare systems don’t want to own, hospitals. Hospitals are the Kryptonite of the healthcare industry from a profitability point of view. Most hospitals in the US are classified as non-profit organizations because they are notorious for losing money. They write off about 70% of what they bill. However, its sheer scale and world-class management have made HCA Healthcare one of the most profitable healthcare providers in the world. Despite the bite of inflationary pressure and labor costs, HCA managed to generate nearly $1.15 billion in net revenue in the last quarter. However, growth is beginning to slow down after the post-pandemic recovery period, as rising inflation is also hitting hospital costs. In addition, Medicare cuts rose to (-2%) in July 2022, essentially lowering health care providers’ reimbursements as hospitals are estimated to lose (-$3 billion) according to the America Hospital Association (AHA).

Thriving after the pandemic

During the pandemic, hospitals faced sharp declines in revenue as clinical and elective surgeries were suspended due to the spread of COVID-19. Covid patients were moved to the top priority emergency room where they soon ran out of space. The federal government subsidized some of the losses, but many community hospitals went bankrupt. As the reopening kicked off and social distancing mandates were lifted, hospitals saw a spike in business as previously delayed surgeries and treatments resumed. The pent-up demand made the financially bolstered hospitals even more cash on the catapult like recovery. The return to normal has started before 2022.

The delay has begun

On July 22, 2022, HCA Healthcare reported its taxable profit for the second quarter of 2022 for the quarter ended June 2022. The company reported earnings per share (EPS) of $4.21 excluding one-time items versus consensus analyst estimates for a profit of $3.71, a hit of $0.50. Revenues grew 2.7% year-over-year (year-on-year) to $14.82 billion, better than analysts’ estimates of $14.73 billion. Adjusted EBITDA was $3.042 billion in the second quarter of 2022, down from 2021 adjusted EBITDA of $3.219 billion. Net income declined to $1.155 billion or $3.90 per diluted share, from $1.450 billion or $4.36 per diluted share in the year-ago quarter. Same facility admissions declined (-1.2%) in the quarter, but same facility emergency room visits increased 7.3% yoy. The number of inpatient operations in the same institution decreased (2.3%) and the number of outpatient operations decreased (-1.4) year on year. HCA Healthcare CEO Sam Hazen commented, “Many aspects of our business were positive given the challenges we faced with the labor market and other inflationary cost pressures.” The Inflation Reduction Act benefits hospitals as more patients continue to maintain their Affordable Care Act (ACA) coverage plans. HCA has also succeeded in successively lowering its contract labor cost. It expects volumes to return to pre-pandemic seasonal trends with more modest hospitalization growth.

This is what the charts say

Using the gun cards on the weekly and daily time frames allows an accurate picture of the pricing playing field for HCA. The weekly gun chart bottomed out below $165.73 Fibonacci (fib) level. The weekly gun chart snaked from the lows to the breakout, peaking at $222.41 before buying momentum waned. The weekly 5-period moving average (MA) drops to $205.18 with a 15-period flat MA at $197.45. The weekly stochastic rejected at the 80 band and returned down. the weekly market structure layer (MSL) triggers on the breakout to $211.99. The daily rifle chart is in a downtrend with a falling 5-period MA resistance at $198.91 followed by a 15-period MA falling at $207.01. The 50-period daily MA resistance stands at $205.59 in between. The daily stochastic is still in a downward oscillation near the 20 band. The daily lower Bollinger Bands (BBs) are near the $184.68 fib level. Attractive pullback levels are $188.33 fib, $184.33 fib, $177.16 fib, $173.72, $170.46 fib, $167.51 fib and $160.23 fib.