Hospital Shares Swoon as HCA Earnings Projection Disappoints

  • Rate of uninsured patients rises from a year earlier
  • Tenet, Community Health also decline after preliminary report

Hospital chains’ shares dropped after industry leader HCA Holdings Inc. released preliminary third-quarter results that missed analysts’ estimates.

HCA said it expects to report net income of $1.17 a share, while the average estimate of analysts surveyed by Bloomberg was $1.22 a share. Shares of the Nashville, Tennessee-based company fell 7.8 percent to $70.09 at 9:48 a.m. Tenet Healthcare Corp. and Community Health Systems Inc. also tumbled.

While inpatient and emergency room admissions rose, the proportion of uninsured patients and labor costs also increased, HCA said. The company also admitted a lower rate of privately insured patients who provide its strongest revenue, said Sheryl Skolnick, an analyst with Mizuho Securities USA Inc.

“Losing those cases for managed-care-centric HCA really hurts margins,” Skolnick said Wednesday in a note to clients. She reduced her price target to $86 from $103, maintaining a buy rating.

Uninsured Patients

The influx of uninsured patients -- 8 percent of admissions at hospitals open for at least year compared with 7.3 percent a year earlier -- at the biggest publicly traded U.S. hospital chain bodes poorly for the industry, said Ana Gupte, an analyst with Leerink Partners.

“This disappointing report from the hospital bellwether HCA confirms worst investor fears of worsening bad debt and a tapering off of the volume swell from the Affordable Care Act,” she said Wednesday in a note. The release “further colors our negative view of the acute inpatient sector.”

Jefferies analyst Brian Tanquilut lowered his price target on HCA to $88 from $112, while UBS’s A.J. Rice cut his price target to $88 from $106. Both advise buying the shares.

Full-year 2015 adjusted earnings will be $5.20 to $5.25 a share, HCA said, narrowing its forecast on Aug. 8 of $4.90 to $5.30 a share. The company is scheduled to release full third-quarter results Oct. 27.

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