Doctor's Orders: 4 Hospital Stocks to Benefit From Industry Trends

Industry Overview - The Zacks Medical-Hospital industry consists of for-profit hospital companies providing various healthcare services, including acute care, rehabilitation, and psychiatric care [3] - Revenue generation is influenced by inpatient occupancy levels, medical services ordered, and outpatient procedure volumes [3] - Payments for services come from government programs like Medicare and Medicaid, managed care plans, private insurers, and directly from patients [3] Key Trends Shaping the Hospital Industry - Growing patient volumes are driven by the resumption of elective procedures post-pandemic, with the 65+ age group projected to increase from 17.3% in 2022 to 22.8% by 2050 [4] - Health spending is expected to reach $5.3 trillion by 2025, indicating strong demand for healthcare services [4] - Rising costs are a concern, but programs like the Affordable Care Act are anticipated to support continued growth [4] Managing Cost Pressures - Hospitals are facing rising expenses due to increased patient volumes and higher supply, labor, and benefit costs [5] - Strategies to counter these pressures include improving labor productivity, adopting cost-saving technologies, and enhancing operational efficiency [5] - Stabilizing patient volumes and renegotiated supplier contracts are expected to strengthen cost control [5] Embracing the Digital Shift - The healthcare sector is accelerating the adoption of AI, automation, and real-time analytics to enhance patient care and streamline operations [6] - Telehealth and telemedicine have become essential components of modern healthcare delivery, especially post-pandemic [6] Rising M&A Activity - Mergers and acquisitions are a key growth catalyst, with the industry expected to see continued deal activity driven by capacity expansion and efficiency goals [7] - Economic stabilization is likely to boost confidence in consolidation efforts within the fragmented industry [7] Zacks Industry Rank Shows Promise - The Zacks Medical-Hospital industry currently holds a Zacks Industry Rank of 27, placing it in the top 11% of nearly 250 Zacks industries [9] - Positive earnings outlook and revisions indicate optimism about the industry's growth potential [10] Industry Performance - The Zacks Medical-Hospital industry has outperformed the Zacks Medical sector and the S&P 500, gaining 3% year-to-date compared to the sector's 3.3% decline and the S&P 500's 6.4% fall [12] Industry's Current Valuation - The industry trades at a trailing 12-month EV/EBITDA ratio of 7.48X, significantly lower than the S&P 500's 16.31X and the sector's 10.48X [15] - Over the past five years, the industry has seen an EV/EBITDA range of 6.16X to 9.55X, with a median of 7.99X [15] Company Highlights - Universal Health Services: Focuses on acute care hospitals and outpatient centers, with growth driven by rising patient days and an expanding care network [18] - Tenet Healthcare Corporation: Operates a broad network of hospitals, with strong revenue growth in its Ambulatory Care segment [22] - HCA Healthcare: Positioned for growth with rising patient volumes and expansion into telemedicine [26] - Community Health Systems: Focuses on telehealth and hospital acquisitions to enhance specialty services and improve cost efficiency [28]