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Walmart Inc.

122.63
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122.63
USD
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A Shocking Guidance Cut From This Healthcare Bellwether Should Worry Investors

With talk of a potential recession buzzing in the financial media, investors will be keeping a close watch on what companies say and do this earnings season. It's early, but one large company just sent a shockwave through the healthcare industry that could have far-reaching implications. HCA Healthcare (NYSE: HCA) is the largest health system in the U.S. It operates 182 hospitals and 124 freestanding surgery centers. And it just cut its earnings guidance for this year. Here's why it made the cut and what that could mean for the rest of the healthcare industry and beyond. Don't look in the rearview mirror Investors focusing on the quarter just reported would think everything is fine. The company posted nearly $15 billion in revenue. That was 7% higher than the same quarter last year and 19% above the first quarter of 2019. Other than the beginning of the pandemic, it continued a steady trend of top-line growth. But CEO Sam Hazen had an update that shattered the expectations of optimistic analysts. He shaved $500 million off of management's initial 2022 revenue projection of between $60 billion and $62 billion. That might not seem like much, but the midpoint would represent HCA's slowest growth -- other than during 2020 -- in a decade. But it wasn't the only bad news. Costs are rising too Unfortunately for shareholders, it isn't just revenue that is heading in the wrong direction. Hazen also pointed to rising labor costs and cut the guidance for profits as well. Normally, a management team that sees slower growth can tighten the corporate belt and cut expenses. For HCA, paying more for staff presents a double whammy. The new guidance puts net income as a percent of revenue at 8.5% this year. That isn't bad, historically. But it's far below what Wall Street has gotten used to. How far will the ripples be felt? A guidance cut on the top and bottom line -- especially citing higher labor costs -- should get investors' attention. HCA is the biggest operator in the industry, and it won't be alone in facing these challenges. That could mean procedure volumes falling for companies like Johnson & Johnson (NYSE: JNJ) and Intuitive Surgical (NASDAQ: ISRG), or patients putting off treatment when the economy isn't doing well. The latter scenario would be bad news for an insurer like UnitedHealth Group (NYSE: UNH). When people delay getting healthcare, insurers benefit in the short term. But they end up paying more later on when patients who have put off healthcare become sicker as a result. But it's not just healthcare that's affected. HCA's guidance cut could be seen as a bad omen for the economy as a whole. While higher wages are good for consumer spending, the increases aren't keeping up with overall inflation. Despite higher pay, the average American saw a pay cut of more than 2% last year adjusted for inflation. Healthcare is a unique profession with high demand and low supply. But if the issue is about labor, large employers like Amazon, Walmart, and FedEx could be the next in line to sound the alarm. 10 stocks we like better than HCA Healthcare When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* They just revealed what they believe are the ten best stocks for investors to buy right now... and HCA Healthcare wasn't one of them! That's right -- they think these 10 stocks are even better buys. *Stock Advisor returns as of April 7, 2022 John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jason Hawthorne has no position in any of the stocks mentioned. The Motley Fool owns and recommends Amazon, FedEx, and Intuitive Surgical. The Motley Fool recommends HCA Healthcare, Johnson & Johnson, and UnitedHealth Group. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

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