Capital expenditure strategy
In 2015, HCA Holdings deployed ~$2.4 billion in capital expenditure. It planned to increase capital spending to $2.7 billion in 2016. These investments are mainly targeted at either increasing HCA Holdings’s share in existing markets or expanding across new markets. The 2016 projections are in accordance with the company’s three-year capital investment plan. It announced the plan in 2015.
The above diagram shows that in 2016, HCA Holdings allotted ~$250 million for information technology expenses, about $1 billion for routine investments, and $1–$1.2 billion for growth opportunities that involve creating additional capacity, developing new service lines, and building outpatient facilities. The company planned to add about 1,000 inpatient beds and 400 emergency room beds in 2016 and 2017. The current capacity in certain key markets won’t be sufficient in future years. In addition to penetrating deeper in geographic markets, HCA Holdings also plans to build new service line capabilities.
As part of its strategy, HCA Holdings is more targeted at investing capital in existing markets. The company can leverage its physician network, brand presence, and cost structure. This has been substantiated by the company’s return on capital in 2015 of 15.4%—an increase of 1.3% from 2013.
HCA Holdings is also focused on exploring the inorganic route for adding outpatient facilities. The company is also adding new startup hospitals to increase its geographical presence and strengthen its provider network. In 2015, HCA Holdings implemented several strategic in-market acquisitions including the physician network in San Jose and an urgent care center in Las Vegas. The company also acquired a rural hospital in the vicinity of Orlando and Jacksonville. It helped refer patients in HCA’s provider network. This added to the company’s market share. Peers such as LifePoint Hospitals (LPNT), Community Health Systems (CYH), and Tenet Healthcare (THC) also adopted the strategy of targeted acquisitions to increase their market share.
You can also invest in the iShares Russell 1000 Value ETF (IWD) and reduce excessive company-specific risks of investing directly in HCA Holdings. HCA Holdings accounts for about 0.22% of IWD’s total holdings.