The link between aging and rising healthcare spending is strong: older patients generally require more medical services and spend more on such services.
This company beat both top and bottom-line consensus estimates in the second quarter, yet the stock remains down ~13% year-to-date.
We’re here to remind investors that more upside potential remains in this stock, as the underlying business is best-in-class and will continue to profit from an aging population for years to come.
Below, we provide an excerpt from our latest Long Idea report. Get the full report a la carte here.
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This stock presents quality Risk/Reward based on the company’s:
- ability to provide care to a rapidly expanding aging population,
- growing admissions and occupancy rates,
- rising hospital and bed counts,
- leading profitability alongside strong cash flow, and
- cheap stock price that implies profits will permanently decline from current levels.
The Aging U.S. Population
The share of the population age 65 and older increased from 12% in 2004 to 18% in 2024, while the share of children declined from 25% to 22%.
This trend will persist. Brookings estimates the population of 80+ year olds will increase from 14.7 million in 2025 to 29.4 million in 2045. Additionally, they estimate 70+ year olds as a percent of the population will rise from 12.9% in 2025 to 17.2% in 2045 while those under the age of 15 will fall from 17.2% to 15.5% of the population over the same time.
The Congressional Budget Office projects the ratio of people ages 25-64 to people ages 65+ will decline from 2.7 to 1 in 2026 to 2.2 to 1 by 2056. Figure 1 illustrates how this ratio has steadily declined since the 1950s.
Figure 1: The Ratio of 25-64 Year Olds to 65+ Year Olds: 1956 Through 2056
Sources: Congressional Budget Office
Aging Population Supports Healthcare Spend
The link between aging and rising healthcare spending is strong: older patients generally require more medical services and spend more on such services.
The Centers for Medicare & Medicaid services (CMS.gov) data shows that the per capita spending of a person aged 85 or older is 8.5x higher than the spending of a child aged 18 or under. For those aged 65-84, healthcare spending is 4.9x higher than those aged <18.
Proven Quality Fundamentals
This company has grown revenue and net operating profit after-tax (NOPAT) by 7% and 9% compounded annually since 2016, respectively. See Figure 6 from the full report.
Additionally, the company’s Core Earnings grew 10% compounded annually from $2.6 billion in 2016 to $6.7 billion in the TTM ended 2Q26.
The company improved its NOPAT margin from 10.6% in 2016 to 12.4% in the TTM, while its invested capital turns increased from 1.5 to 1.6 over the same time. Rising NOPAT margin and invested capital turns drive the company’s return on invested capital (ROIC) from 16% in 2016 to 20% in the TTM.
Figure 6: Revenue and NOPAT: 2016 – TTM ended 2Q26
Sources: New Constructs, LLC and company filings
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