Sector Snap: Investors take profits on hospital stocks
NEW YORK—Shares of some hospital operators posted gains Thursday, but many declined as analysts said investors were looking to take profits on hospital stocks which have run up, ahead of the seasonally weaker second and third quarters.
Shares of LifePoint fell $1.75, or 5.8 percent, to $28.37 in afternoon trading, while Community Health slid $1.04, or 2.8 percent, to $36.49. Universal Health shares fell 95 cents to $61.69 and MedCath dipped 11 cents to $18.45.
On the rising side, Tenet shares edged up 8 cents to $6.48 after falling sharply Wednesday, and shares of Health Management rose 18 cents, or 2.5 percent to $7.31. Psychiatric Solutions shares spiked $2.93, or 8.4 percent, to $37.64.
Jefferies & Co. analyst Frank Morgan maintained a "Buy" rating and $43 price target on Community Health Systems shares, noting the company's strong volume growth and solid expense controls in its first-quarter report earlier this week. He thinks that with the integration of Triad in full swing and no issues to date, Community Health's management is maintaining a solid track record of improving operations at acquired facilities, and therefore thinks its stock warrants a higher value.
Goldman Sachs analyst Matthew Borsch noted that the stock is down modestly this afternoon, but thinks Community Health will gain traction on operating improvements and Triad synergies, and believes the company will raise full-year guidance when it reports second-quarter results. He also maintained a "Buy" rating and $47 price target.
But Stifel Nicolaus' Robert Hawkins cut his rating on Community Health to "Hold," saying the stock is trading around his $39 price target. He noted that each hospital company has beat earnings, but none have increased guidance for 2008, causing investor sentiment to shift.
Hawkins also pointed out that many investors are taking profits in the sector ahead of seasonally lower second and third quarters, which is why Community Health shares have been down despite favorable quarterly results.
Meanwhile, Cowen and Co. analyst Kemp Dolliver said LifePoint reported first-quarter profit well ahead of expectations, but raised 2008 EPS guidance by just 10 cents per share. He maintained a "Neutral" rating on the stock given a deteriorating economic backdrop, noting that the company's admissions would have actually declined if not for a worse-than-expected flu season and having an extra day due to Leap Year.
Stifel Nicolaus & Co.'s Robert Hawkins said much of LifePoint's earnings upside is due to lower bad debt expense, "which we believe may be due to the company's accounting policy rather than a fundamental improvement." He also suggests higher charity care write-offs may have helped the numbers.
Shares of Franklin, Tenn.-based Psychiatric Solutions Inc. climbed Thursday after the psychiatric hospital operator posted strong first-quarter results, and issued a more optimistic full-year outlook. Citi analyst Gary Taylor said the first quarter showed that, unlike rival hospital operators, Psychiatric Solutions does not feel much of an impact from economic risks and changes in Medicare reimbursement. He expects revenue to increase along with patient admissions.
