Deutsche Bank Comments on Implications for HCA Holdings (HCA) Inclusion in the S&P 500

Deutsche Bank maintained a Buy rating on HCA Holdings (NYSE: HCA) with a price target of $89. Yesterday shares gained on news it will be included in the S&P 500. Analyst Darren Lehrich believes HCA’s inclusion could have broader implications for shares.

"Up until recently, U.S. investor-owned hospital chains – and health care facilities more broadly -- have been under-represented in the S&P 500 Index ...And, up until HCA’s addition, U.S. health care providers (facilities and alternate site co’s) have been extremely under-represented in the S&P 500 Index ..." said Lehrich.

"We calculate the total health care sector weight for the S&P 500 is currently 15.6%, while the 19 health care services co’s in the index represent approximately 366 basis points. Within the health care services weighting, we estimate the six health care facility / provider names (HCA, DVA, DGX, LH, THC, and UHS) together have a ~38 bps weighting, of which HCA will represent nearly one-third of the sub-sector weighting. The three hospital companies together will have just over 19 basis point weighting in the index overall – still lower than MCOs (~127 bps weighting) and PBMs/distributors (~199 bps weighting). But we believe the hospitals will become increasingly relevant for institutional investors based on the S&P 500 inclusion," continued the analyst.

"For HCA specifically, we believe it should screen well within the benchmark given its long-standing operational track record, strong capitalization and relatively un-demanding valuation (13.4x 2015E P/E)," he added.

For an analyst ratings summary and ratings history on HCA Holdings click here. For more ratings news on HCA Holdings click here.

Shares of HCA Holdings closed at $73.00 yesterday.

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