HCA Healthcare (HCA)

Total return at 5 years: 3.7%/year = 2.9% appreciation + 0.8% dividend. The target price ($530) is ex-dividend; the $19 in dividends collected over 5 years are added separately.

The methods disagree: one places the value today above the price ($459) and the other below.

Today — expensive, no margin of safety: at $459 trades ~3.7% above its value discounted to today (~$442); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Preserva valor: the target price ($530) plus dividends yield just enough to preserve nominal capital, below the required 4% floor.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$276.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($459) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-7.4%/year) than we project (5.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$4.4 bn of owner earnings in year 5 (vs ~$8.3 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on EV/EBIT — resultado operativo normalizado, neto de la participación no controlante. In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Capital-intensive, heavily leveraged hospital operator: total debt of 49.7 billion against negative attributable book equity, which went from −1,774 million at year-end 2023 to −6,642 at June 30, 2026, at the pace of the buyback. Valued at the enterprise level by EV/EBIT: the multiple applies to normalized pretax operating income, from which the noncontrolling interest is deducted at its pretax equivalent, because that portion does not belong to common shareholders. It is the same class of earnings the archetype band is calibrated on. The deduction is material because many hospitals operate through joint ventures: the noncontrolling interest takes 1,013 million of the 7,853 of consolidated trailing-twelve-month net income as of June 2026, 13%, which at the 2025 fiscal-year effective tax rate (20.9%) equals 1,281 million pretax, i.e. 1.64 points of margin in year 0; the operating-margin path for years 1 through 5 is expressed net of that deduction. Cash (1,013 million) and debt (49,718 million), both as of June 30, 2026, enter the bridge. The exit multiple on that result is 10.2 times in the base case, 9 in the bear case, and 12.2 in the bull case, within the archetype's band of 9 to 13 times. Year 0 is the trailing-twelve-month window chained by levels to the June 2026 close (fiscal 2025 + first half of 2026 − first half of 2025, from the July 24, 2026 release and the second-quarter 10-Q). Revenue of 78.013 billion. Attributable net income of 6.840, normalized to 6.506 by removing the portion of the Florida Directed Payment Program attributable to periods before 2026 (980 million of revenue and 557 of expense, 423 pretax). Consolidated operating income of 12.187 (pretax income of 9.871 plus interest expense of 2.316), normalized to 11.764 for that same 423 million and left at 10.483 once the noncontrolling interest is deducted. Depreciation of 3.674 and capex of 5.127. Trailing-twelve-month operating cash flow is 11.124 (14.3% of revenue) and is shown unnormalized: the 10-Q attributes the first-half decline mainly to an increase in receivables tied to Medicaid directed and supplemental payment programs and to higher tax payments from advances that in 2025 were deferred to the fourth quarter for taxpayers headquartered in Tennessee. These are calendar effects, but the filing does not break out their amount, so no normalized level is estimated; from year 1 the path (16.7%) is in line with the fiscal 2025 margin (12,636 over 75,600). Year 1 is anchored on the two anchors of the guidance revised on July 14, 2026: revenue of 77.0 to 79.5 billion and attributable net income of 6.3 to 6.7 billion. The bear and bull scenarios anchor on the extremes of that same range. The path shows a trough in year 1 and a recovery afterward: it is the expiration of enhanced individual-market insurance premium tax credits and the adjustment to Medicaid supplemental programs, a level hit that gets annualized and then laps, not a structural slowdown. Cash is not growing — 935 million at year-end 2023, 1,933 in 2024, 1,040 in 2025, and 1,013 as of June 30, 2026 — because the surplus is redeployed into capex and buybacks; that is why the model does not accumulate cash and the buyback is shown explicitly in the share path, the same across all three scenarios. That path models a compounded annual reduction of 4.3% between year 0 and year 5 (from 222.8 to 179.2 million), below the 7.7% revealed by the trailing-twelve-month shares-outstanding series (236.1 million at June 30, 2025 versus 218.0 at June 30, 2026), and the difference is disclosed rather than extrapolated: fiscal 2025's buyback (10.07 billion) exceeded that period's free cash flow (7.70 billion, operating cash flow of 12.64 less capex of 4.94) and was funded with new debt (8.47 billion issued against 7.39 repaid, i.e. 1.08 of net issuance) on a balance sheet that already carries 49.7 billion with negative book equity. The method does not extrapolate a leveraged buyback or a pace the cash flow cannot sustain on its own; the trailing-twelve-month flow's nominal capacity as of June 2026 after the dividend is 5.9% of market value, and the path is deliberately kept below that, consistent with a balance sheet that cannot take on more leverage.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $530 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $459, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $530 in 5 years plus $19 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $442. Against the current market price ($459), the margin of safety is -3.7% (trades above the maximum → a premium is paid) and the total return at that price would be 3.7% annually.

• Multiple vs. quality. 14× pretax operating income net of the noncontrolling interest, with the exit multiple at 10.2 times, at the low end of the archetype's 9 to 13 band.
• The reverse approach. Discounting to present value at the risk-free rate implies a terminal multiple far above anything the market has ever paid for a hospital operator, so the multiples lens leads and the present-value figure stands as a second read.
• Margin of safety. Total return +4% on a verdict of Preserves value; the gap between the bear and bull cases is wide because leverage amplifies any move in the margin.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (104%, cash vs. accruals)
• ✕ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on capital vs. the hurdle. Return on invested capital of ~20% against the 10% bar for the trailing twelve months to June 2026, though inflated by negative book equity resulting from the buyback.
• Margin and stability. Normalized operating margin of 15.1% and attributable net margin of 8.3% for the trailing twelve months to June 2026. Consolidated operating margin ranged between 13.6% and 19.4% in fiscal years 2019 to 2025, on a mostly fixed cost structure that cuts leverage both ways.
• Quality of cash flow. Operating cash flow of 11,124 million against 7,853 of consolidated net income for the trailing twelve months to June 2026, depressed by the increase in Medicaid-program accounts receivable; in fiscal 2025 it was 12,636 against 7,782. Maintenance capex under the Greenwald rule (around 3,337 million) sits below depreciation (3,674), so the return measured with cash flow exceeds the accounting return.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The engine of a hospital operator is volume times price and mix. In 2025 equivalent admissions grew 2.9% (from 3,990,085 to 4,107,152) and revenue per equivalent admission grew 4.0%, which combined give the +7.1% revenue growth. Inpatient surgeries grew 0.9% and outpatient surgeries fell 0.2%, the direct signal of the migration of procedures out of the hospital. Emergency department visits grew 1.6% and occupancy closed at 73%. Geographic exposure is shown through the revenue of Texas and Florida, which together account for 51% of the total, and through the Medicaid directed and supplemental payment programs, which contributed $6,200 million in 2025.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real, not nominal. Volume is genuinely growing: equivalent admissions +2.9% in 2025. The rest (+4.0% of revenue per equivalent admission) mixes rate and case complexity.
• Growth engine. Population aging, domestic migration toward Texas and Florida, and local market-share gains through complete networks by community.
• Deceleration and cycle. Year 1 anchors on the revised guidance and comes out nearly flat: the hit from the expiration of the enhanced premium tax credits is $1,000 to $1,200 million. The valley-shaped path is stated explicitly, not smoothed over.

• Relevant in 10 years (recurrence). Demand for acute hospital care is structural and grows with population aging. The question is not whether there will be demand but where it will be delivered and at what rate.
• Pricing power. Limited and asymmetric: close to half of revenue is billed at regulator-set rates, with a +2.6% update for 2026, and the other half is negotiated against increasingly concentrated private insurers.
• Moat and its direction. Real local moat but narrow and declared to be eroding: certificate-of-need requirements are falling and the regulator is pushing higher-margin volume toward the outpatient setting.
• Capital cycle. Capital is entering specialized outpatient care (surgery centers, independent emergency departments, urgent care clinics) and competing precisely for the hospital's highest-margin procedures.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• !Interest coverage (EBIT / interest)5.1x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 104% of ROIC
• ✓Value creation (ROIC − 10% bar)+10pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.4x
• –Float / working capitalNeutral WC
• ✓Dilution (SBC % of revenue + shares)SBC 0.5% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. 49,718 million of total debt against negative book equity of 6,642. It is a structural choice, not operating deterioration, but it leaves little room.
• Coverage and cash. Normalized operating income of 11,764 million against 2,316 of interest expense (about 5.1 times) and operating cash flow of 11,124 million for the trailing twelve months to June 2026.
• Distributions vs. free cash flow. Dividend and buyback together totaled 9,373 million against 5,997 of operating cash flow net of capex: more is returned than is generated, and the difference is funded with debt.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Skin in the game. Two holding vehicles concentrate 32.9% of the capital; directors and executive officers as a group hold 1.5%. There are reference shareholders with real weight.
• Capital allocation. The buyback has retired nearly a quarter of shares since 2022, but dividends and buybacks exceed free cash flow and the difference is funded with debt on top of already-negative book equity.
• Integrity and normalization. The release of July 24, 2026 explicitly separates the $980 million of revenue and $557 million of expenses from the Florida program relating to prior fiscal years, and the guidance revision on July 14 laid out the cut plainly.

• Motivated seller with an identified cause: 2026 guidance was revised downward on July 14, 2026 (attributable net income of 6,300-6,700 million versus 6,495-7,035 previously, and earnings per share of 28.70 to 30.50 versus 29.10 to 31.50).
• The market prices the regulatory change as permanent: the expiration of the individual-market enhanced premium tax credits and the adjustment to the Medicaid programs are read as a structural reduction in the payer mix, not as a single-year level hit.
• Leverage amplifies the read: with 49,718 million of debt and negative book equity, any margin compression translates into a much larger move in earnings per share, and that widens the discount the marginal buyer demands.

The source of the discount exists and has a date: the results release of July 24, 2026 and the guidance revision of July 14. The discrepancy between perception and reality lies in the duration, not in the existence of the hit: the price appears to price in that the loss of enrollees accumulates year after year, while guidance describes it as a level impact of $1,000 to $1,200 million partially offset by $300 to $500 million from the Medicaid supplemental programs. The release was read and it does change the case: it is the anchor for year 1 and the reason for the valley-shaped path.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -6%/year (-27% total): the margin of safety protects the downside. The bull (+13%/year, +84% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Payer mix. The central disconfirming test: the expiration of the individual-market enhanced premium tax credits pushes up uninsured patient admissions and uncompensated care, which already rose from $3,720 million to $4,605 million between 2023 and 2025.
• Site-neutral payment. The phased elimination between 2026 and 2029 of the inpatient-only list of Medicare procedures shifts higher-margin volume to the outpatient setting.
• Geographic concentration. 51% of revenue in Texas and Florida: hurricanes Helene and Milton cost about $250 million in 2024.
• Labor cost. Nursing shortages, mandatory staffing ratios in some states, and 35 unionized hospitals, against rates that are updated once a year.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: narrow moat, eroding.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 5% at a multiple/growth of 2.9 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 12% (EBIT/EV) + ROIC 21% → makes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -7% vs our 5%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -7%/yr, bull-scenario ceiling +12%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, eroding; sources: network effects, cost advantage, efficient scale, intangibles, switching costs → fails the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -7%, within what we project (5%) — the story squares with the numbers.