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Sinking hospital stocks may offer buying chance

Tue, 08/09/2011 - 10:45am
The Associated Press

A monthlong decline for hospital stock prices has led to too much of a discount for the possibility of future Medicare cuts coming from debt reduction talks in Washington, a Citi analyst said.

Analyst Gary Taylor said in a research note Tuesday that 2 percent, across-the-board cuts for Medicare, the federal program that provides health coverage for the elderly and disabled, are probable because Congress seems incapable of reaching a bipartisan agreement to pass $1.2 trillion in additional spending cuts by the end of the year.

But he also said hospital stocks are now discounting far more than a 2 percent cut.

"Thus we believe the opportunity for a short-term trade exists in (2011's second half)," the analyst wrote.

Taylor said HCA Holdings Inc. stands out as a favorite with its current valuation at six times the analyst's 2012 earnings-per-share estimate.

"We are unable to definitively call the bottom but believe the current valuation affords an enormous range of error with respect to forward estimates," Taylor wrote.

Other companies in the sector include Community Health Systems Inc., Tenet Healthcare Corp. and LifePoint Hospitals Inc.

Shares of HCA fell 20 cents to $17.99 in late Tuesday morning trading, while broader indexes climbed more than 1 percent. Community Health shares were up 6 percent, or $1.09, to $19.23; Tenet climbed 3.5 percent, or 16 cents, to $4.79; and LifePoint rose 4.7 percent, or $1.36, to $30.52.

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