HCA Healthcare shares surge after JPMorgan singles the idea out as tax cut play

Shares of HCA Healthcare closed more than 6 percent higher Thursday after JPMorgan research concluded of which the company would likely “disproportionately benefit” through the Republican tax plan.

Should the GOP muster enough congressional support to lower the corporate tax rate to 20 percent as planned, JPMorgan analyst Gary Taylor believes HCA Healthcare could see nearly 20 percent upside over the next year.

“The currently proposed U.S. corporate tax reform would likely disproportionately benefit HCA within our universe on JPMorgan’s relative performance rating methodology,” wrote Taylor on Thursday. “HCA generates nearly 100% of its net income within the U.S. as well as pays a full U.S. corporate tax rate (This particular fact alone should drive a 23% increase in EPS if the U.S. corporate tax rate declines through 35% to 20%).”

The analyst increased his cost target to $96 through $75, representing 20 percent upside through Wednesday’s close.

If everything goes according to plan, HCA could see its current 2019 consensus EPS increase by 30 percent, through $8.06 to nearly $10.50 per share, Taylor added. however of which may be a big “if.”

Budgetary concerns through top Republican lawmakers (as well as fierce opposition through Democrats) still linger. As one of President Donald Trump’s key campaign promises, the tax reform plan has been scrutinized by investors seeking to play the markets should the GOP cut the corporate tax rate to 20 percent. as well as with so much of HCA’s income generated domestically, the idea may reap big gains if Senate Majority Leader Mitch McConnell gets his way.

Tax reform hopefuls received welcome news Thursday as Republican Sen. John McCain — previously a holdout on the tax plan — said he would likely support the bill. Immediately following news of McCain’s go-ahead, equities took yet another leg up, with the Dow Jones industrial average adding more than 300 points as well as smashing through 24,000 for the very first time ever.

Yields matched the uptick in stocks as more as well as more investors grow convinced of tax reform success. The 10-year Treasury note yield — which has been trading in a tight 2.3 to 2.41 percent range for the entire month of November — jumped to 2.43 percent by midafternoon after a relatively lethargic morning.

With all Republican senators voting Wednesday to start debate within the full chamber, many expect a vote on the bill sometime Thursday afternoon. Should the tax bill pass the Senate within the next few days, stocks like HCA may move to confirm analyst Taylor’s bullish hypothesis.

“HCA remains the bellwether hospital operator,” explained Taylor. “We believe HCA controls leading inpatient market share in most of its markets as well as enjoys by far the highest average market share of for-profit hospital operators. This particular strong market positioning has as well as will likely continue to insulate HCA through the degree of rate as well as utilization pressures of which some other hospitals may face as the U.S. delivery system moves away through a fee-for service payment style over the coming years.”

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