Editor's note: We are locking in the 10% gain in HCA since we added it to Investing Ideas on 11/7/14. For the record, the S&P 500 fell -3% during this time. Healthcare Sector Head Tom Tobin is concerned that Texas exposure could become a problem in 2015 for HCA if the decline in crude oil prices continues. Additional explanation below.
~50% drop in crude oil prices since June
WTI has been nearly cut in half, dropping from a peak of $102 on June 25 to its most recent level of $55. The carnage is obvious in prices across the energy sector. However, if the decline persists through 2015, which is the current forecast of the EIA, our analysis shows a likely downward pressure on medical consumption in Texas (a key market for HCA).
- Texas Gross Product, Non-Farm Payrolls, tax revenue, and the price of crude are tightly related despite a small contribution from the sector to state non-farm payrolls. Gas extraction jobs in the state were 11,190 in 2013, or 1% of total Texas non-farm payrolls.
- The Texas state budget has a small direct exposure to oil and gas related tax sources.
- However, medical consumption in Texas trends with local economy. The drop in crude oil price will pressure the state economy, and indirectly, medical consumption.
HCA's exposure to Texas is significant with 25% of beds and 24% of revenue in state.