Deutsche Bank Markets Research Rating Buy North America United States Health Care Health Care Facilities and Services (kimi)0117 HCA Holdings, Inc. HCA N HCA US NYS Q4 surgery/mix recovering; 2014 / ACA outlook conservative Reiterate Buy. F ICA's it:sure: demomtrate best in breed (14 operating metrics were not given at time of early Jan. +ve pre-anncmt. Actual results highlight a recovery in surgical trends, which boosted pricing/mix and helped drive solid C14 EBITDA growth (+6.7% YoY) despite weaker inpt medical trends and a tough vol comp. HCA provided initial ACA guidance, but mgmt may revisit assumptions on key ACA variables mid-year given how fluid the roll-out is. For 2014. ACA initially guided -$100M (+1.5%) EBITDA benefit underpinned by 7%-9% reduction in uninsured and slight offset by pricing/vol impact for exchange mix. Given strong organic growth trends in recent Qs, we believe 2014 EBITDA guidance should prove conservative. Q4 CC.: tal.oawaytt fret:O1(S uview rn Itcrely of note) 11) Volume/prbIng metrics: surgery the bigger story. Weak SS inpt admits (- 1.8%) reflect tough comp, lower flu trends and -50 bps from 2-midnight rule. Importantly. HCA does not see 2-midnight rule having material financial impact. The bigger vol story in O4 (and last 3 Qs) is surgeries; Q4 surg vol (+1.4%) and strength in higher-acuity areas (cardio, ortho, neuro) helped drive pricing (RPAA) +4.8% YoY. The ratio of inpt surg / inpt admit rose to 30% (from -29% avg past 2 yrs) and ratio is 200-300 bps below peak. A sustained rebound in surgical mix could be an upside risk to guidance. '(2) 2014 guidance assumes 1%-4% EBITDA growth. Underlying assumptions (ex. ACA) include 1-2% adj. admit (vol) growth. 2-3% RPAA (pricing) growth and flat margins. Given 2H'13 RPAA growth (+4%) and recovery in surg. RPAA seems conservative. Guidance assumes adj. vols improve vs. 2013 flat. The key headwinds built-into guidance: $120M lower YoY HITECH and $55M