Incorporating HCA’s current market position, operating metrics, growth outlook, and industry backdrop, along with historical and relative valuation multiples, we derive a $393 target price for HCA shares. Our target price pegs ~10.5x on our 2025 EBITDA-NCI estimate. While our target multiple sits at the high end of HCA's historical averages, we believe that it is warranted given HCA’s scale, dominant market position, and financial flexibility given its strong liquidity position. While there is some balance in consideration of near-term risks, including physician subsidy costs (including Valesco JV headwind), we believe HCA is still well positioned for growth as the company laps many of the pressures as a result of the fallout from the pandemic, with potential upside on further labor improvement and favorable payor mix development as Medicaid redeterminations unwind and HIX membership in the company's largest states (TX & FL) exhibit near to above total market growth.

Risks to our investment thesis and target price include the economic and behavioral consequences from the fallout of the COVID-19 pandemic, the potential difficulty in expanding margins, geographic concentration, and pricing pressures. The COVID-19 pandemic has resulted in deferred/canceled care, which has negatively impacted volumes as individuals have postponed or forgone care, as well as heightened costs for clinical labor. While volumes have largely recovered above pre-pandemic levels, if the pandemic continues to impact behavioral considerations around healthcare utilization, as well as higher labor supply, operations could continue to be materially impacted. The company has also enjoyed margin levels higher than many of its publicly traded peers that, if combined with abating volumes and higher inflationary costs, may make it difficult for HCA to expand margins. HCA has significant exposure to two states (TX and FL), and negative events in one or more of those states could pressure earnings. A significant portion of HCA patient revenues are earned from government healthcare programs. Changes to state or federal healthcare programs such as higher eligibility requirements, increased copayments or coinsurances, or automatic, uniform spending cuts for Medicare or Medicaid could drive large fluctuations in earnings. If the negative impact on the company from any of these factors proves to be greater than we anticipate, the stock could have difficulty achieving our target price. Conversely, if the impact on the company from any of these factors proves to be less than we anticipate, the stock could outperform our target price.