Buy the ‘Just Right’ Health Care Solution

Jack Bovender was sick and tired of the Street not understanding his business.

As the calendar turned to April 2006, he had been running HCA – the largest hospital company in the U.S. – for four years. And no matter what he did, the market just shrugged it off.

Selling the business seemed out of the question. Bovender assumed HCA was too big for any private-equity (“PE”) buyer. So he was surprised – and delighted – when an investment banker told him a leveraged buyout, or LBO, was on the table.

LBOs can be extremely lucrative. PE firms fix up a broken business by cutting costs and focusing on its most important parts. Eventually, they sell it again for a huge profit.

Within less than three months, HCA went private at a $33 billion valuation. Then, it waited for a change… And it got one four years later, when President Barack Obama signed the Affordable Care Act (“ACA”) into law.

Before the ACA, many hospitals were drowning in bad debt from patients who weren’t insured and couldn’t pay their bills. Now, everyone in the U.S. was required to have health insurance. Hospitals didn’t have to worry as much about bad debt, and their profits skyrocketed.

Not only were HCA’s current hospitals more profitable… it had more acquisition targets to choose from.

HCA’s management took the company public again. It’s now sitting on more than a 13 times return.

Because the health care system is so complex, it often takes time for the market to come around to these stocks. Investors have to grasp just how valuable different health care providers are… and where they fit in the ecosystem.

Once HCA went private, it took an act of Congress for investors to come back around. And now, the regulatory winds are changing once again…

Government programs and other health care payers are looking to lower costs. But patients still need quality care. And while that plays out, one health care operator has been quietly building an empire…

Today’s recommendation has been following in HCA’s footsteps to grow its business. It’s consolidating the most profitable parts of its market.

And like HCA, we expect its stock to soar soon as well.

Regards,

Joel Litman