To The Moon

$Hca Healthcare Inc(HCA)$

Today, we’re diving into a stock that came in as a viewer request—HCA Healthcare Inc., ticker symbol HCA.

Sector Overview: Healthcare Facilities in a Secular Growth Trend

Let’s start by placing HCA Healthcare within its broader context. HCA operates a network of hospitals, surgery centers, and emergency rooms across the United States. It’s part of the healthcare facilities industry, which—due to demographic shifts—is experiencing what many would call a secular growth trend.

We’re in the midst of a major demographic shift in the U.S. The baby boomer generation is aging, and a large portion of the population is either entering retirement or requiring more frequent medical care. This isn’t a short-term theme—it’s structural. It’s baked into the population data and likely to continue for decades.

So right off the bat, HCA Healthcare is positioned in an industry with tailwinds, not headwinds. That doesn’t mean it’s risk-free, but it gives us a strong starting framework for evaluating the company.

Business Size & Historical Growth

From a size standpoint, HCA is a behemoth. The company has a market capitalization approaching $100 billion, which puts it firmly in large-cap territory. It’s also a component of the S&P 500, which makes it widely held and relatively well-known among institutional investors.

Looking at HCA’s historical earnings growth, we can pull up the Fast Graph to visualize it. Unfortunately, we don’t have data going back to the Great Financial Crisis, but we do have solid numbers from 2011 onward. Over that stretch, earnings per share (EPS) growth has averaged about 15–16% annually, which is quite impressive for a company of this size and maturity.

At first glance, with a current price-to-earnings (P/E) ratio around 16 and an EPS growth rate around 16%, this appears to be trading at a PEG ratio (P/E divided by growth) of 1—which is often seen as a benchmark for fair value, and a potential bargain if you're following a Peter Lynch-style approach to growth-at-a-reasonable-price (GARP) investing.

But—and this is a big one—we need to look under the hood before we decide whether this PEG ratio is truly justified.

Two Valuation Adjustments: Buybacks and Debt

There are two critical adjustments we need to make before calling HCA a “PEG 1” stock. These factors can significantly change our valuation model:

1. Share Buybacks

2. Enterprise Value & Debt Load

Adjustment #1: The Share Buyback Factor

Let’s start with buybacks. Over the past decade, HCA Healthcare has been aggressively buying back its own stock. In fact, it has reduced its share count by 42% since 2011. That’s nearly half the company’s shares!

Now, buybacks are not inherently a bad thing. In many cases, they are an excellent capital allocation strategy—especially if a company is repurchasing shares when its stock is undervalued. But they can also artificially inflate EPS growth, which is what most screeners and visual tools like Fast Graphs rely on.

When EPS is used to calculate growth, aggressive buybacks make the company look like it’s growing faster than it really is at the operating income level. That’s because fewer outstanding shares means the same total earnings get divided into larger per-share chunks. But this doesn’t necessarily mean the core business is growing at that rate.

If we back out the effects of buybacks and estimate what the growth would look like without EPS inflation, the real organic growth rate of the business drops from 16% to somewhere around 10–11% annually. That’s still a solid number—but not quite the bargain that a PEG of 1 would suggest.

Adjustment #2: Debt and Enterprise Value

The second key factor here is debt. HCA carries significant leverage, with a 55% difference between its market cap and its enterprise value. In other words, if you were to buy the whole company outright—including its debt—you’d be paying considerably more than the stock price alone suggests.

To account for this, I like to adjust the valuation as if you were acquiring the entire business—including the debt. So instead of evaluating HCA based on its $380 share price, I calculate its intrinsic value based on an adjusted price closer to $589 per share, to reflect total enterprise value.

This debt adjustment has the effect of raising the implied P/E multiple—from 16 to roughly 24 times earnings—and when we pair that with the adjusted growth rate of 10%, the PEG ratio balloons to 2.4, rather than 1. That’s a big difference.

Valuation Analysis

One of the methods I like to use is something I call “Time Until Payback” analysis. The idea here is to ask: If I bought this business—including all its debt—how long would it take for the company’s earnings to pay me back my investment?

To run this, I start with HCA’s expected forward EPS of $25.36, then pull that forward by 10% to reflect growth early in the year. Then I assume the earnings grow at a compounded 10% rate per year, which is our adjusted figure.

So, if I paid $100 for the business (on a relative valuation basis), I’d expect to earn:

• Year 1: $4.75

• Year 2: $5.24

• Year 3: $5.78

• And so on…

When you add up those annual earnings over time, it would take just under 12 years to earn back your original investment. That’s your payback period.

For context:

• A 9–10 year payback window is typically attractive to me.

• A 15+ year payback period is a potential sell zone.

• The S&P 500 currently has a payback period of about 14 years, which implies HCA is slightly cheaper than the overall market—but not by a wide margin.

So, once we factor in buybacks and debt, HCA Healthcare looks like a fairly valued stock, not a screaming buy.

Risk and CHallenges

There are a few additional things to consider here that aren’t fully captured by the numbers:

• Recession Resistance: We don’t have recession-era data from the 2008–09 crisis in our dataset, so it’s unclear how HCA performs in a true economic downturn. Healthcare is often considered defensive, but hospital utilization and profit margins can take a hit depending on patient mix (i.e., private insurance vs. Medicaid/Medicare).

• Capital Allocation Strategy: HCA’s buybacks suggest a consistent strategy, but not necessarily a highly opportunistic one. They’ve been repurchasing shares steadily, regardless of valuation. That’s fine, but not optimal. The ideal strategy would be to buy back more stock when it’s undervalued and less when it’s expensive.

• Interest Rate Sensitivity: With rising rates over the past few years, companies with higher debt levels like HCA are more exposed to refinancing risk and interest expense. This could affect future earnings if debt costs rise meaningfully.

Final Thoughts: Is HCA a Buy?

Let’s tie this all together.

HCA Healthcare operates in a secular growth industry, has an excellent history of capital returns, and shows solid adjusted earnings growth even after backing out share buybacks. However, when we adjust for debt and normalize earnings growth, the valuation becomes less attractive than it appears on the surface.

At today’s price, HCA stock looks roughly fairly valued. It trades slightly below the S&P 500 on a payback basis but not enough to consider it a value play. If the stock were to correct down to the low-$300s or below, it might offer a better entry point, assuming no deterioration in fundamentals.

For now, I’d categorize HCA as a "Hold" or “Watchlist” name. It’s a well-managed company in a good sector, but there’s no clear margin of safety at current levels—at least not based on the earnings and valuation math.

If you’re a long-term investor looking for exposure to healthcare infrastructure with steady compounding and strong share reduction policies, this is worth tracking. But as always, valuation is key.

Let me know what you think in the comments. Is HCA on your watchlist? Would you buy it at current levels, or are you waiting for a better price?

Until next time—stay curious, stay patient, and stay invested.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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