HCA's Revival Is for Real

After some difficult years, the health care services giant is finally back on track.
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There's little doubt that the Clinton health care fiasco and accusations that

HCA

(HCA) - Get Report

submitted fraudulent Medicare and Medicaid claims placed the health care services company squarely in the doghouse. The stock has essentially been dead money for the past five years. But the times, they are a-changin'. In fact, the company has paid out more than $800 million to settle most of the fraud charges. And based on what I've seen, the worst-case scenario appears to have already been factored into the share price.

For those unaware, strong patient volume and favorable demographics have enabled HCA to experience some pretty terrific growth in the first nine months of fiscal 2001 (revenue was up 7.3% over the same period a year earlier, while earnings per share, net of charges, were up 18.3%). In addition, management has been aggressively cutting costs by doing such things as limiting the growth in supply costs and speeding up its debt collection process. These efforts have transformed HCA into a darn solid company.

Still not convinced?

Then consider that HCA has also repurchased more than $1 billion worth of its common stock under a March 2000 buyback authorization. And that on Oct. 24, the board instituted another $250 million share-repurchase program. The company's willingness to lay out its precious capital on its stock, rather than plunging it back into the business, is a sign that better times lie ahead for its stock price.

Put simply, HCA is a great stock to own. With an anticipated growth rate of about 16% over the next year, the sentiment (based upon the average sell-side price target) is that this is a $55 stock at a minimum within the next 12 to 18 months.