Obamacare--How To Profit
Sharmistha is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Hospital stocks have performed well amid expectations that Obamacare will survive as his chances of re-election look better. Hospitals will see more patients with health insurance which increases the pool of customers by 10% in the coming year. This massive health insurance coverage expansion is about to unfold in the U.S, beginning in 2014, and is expected to benefit providers uniquely since the coverage expansion will yield fewer uninsured/uncompensated patient encounters, while also spurring higher demand for services. Hospitals stand to benefit the most for the simple reason that more people with insurance mean more business for them.
The more successful and aggressive consolidators in the space are Universal Health Services (NYSE: UHS), HCA Holdings (NYSE: HCA) and Tenet Healthcare Corporation (NYSE: THC). Universal Health Services is one of the nation's largest hospital companies, operating, through its subsidiaries, acute care hospitals, behavioral health facilities, and ambulatory centers throughout the United States, Puerto Rico, and the U.S. Virgin Islands. Universal Health Services has calculated support and resistance at $38.25 and $45.86 respectively. Clearly, with this action, this range has been penetrated, and traders will be reviewing price action to establish a new tradable range. UHS is levered to both higher margin and higher growth behavioral segment. While 3 analysts rate it as a “hold” there are 11 who rate it a “buy.” Shares of Universal Health Services broke its 52 week high. Over the past year, Universal Health Services has traded in a range of $31.35 to $45.77 and is now around $45.73. With quarterly growth of 9.06% and annual revenue growth of 42.07%, stable organic growth and improving profitability is reflected. The Company’s increasing market presence along with strong cash flows and liquidity has also contributed to share price appreciation. The future holds a rapidly growing inpatient behavioral business.
Its peer, Tenet Health Care, has quietly gained 15% in the past five days. Tenet beats its competitors on revenue growth as per a recent analysis. Improvement on operating revenues and net patient revenues along with effective cost control and declines in bad debt are positive catalysts for the company. A year-over-year increase of 3.4% in total controllable operating expenses and reported second-quarter profits above market estimates it has reaffirmed its full-year forecasts. Tenet reported second-quarter 2012 income from continuing operations of 10 cents per share, surpassing the Zacks Consensus Estimate of 5 cents. As of June 30, 2012, total assets of Tenet were $8.49 billion and shareholders’ equity was $1.18 billion. Net cash flow from operating activities in the reported quarter was $243 million, soaring up from $178 million in the year-ago quarter. Analysts have rated Tenet on a “outperform” basis.
HCA Holdings, one of the nation's leading providers of healthcare services, has progressed from rating of B (“buy”) to an A (“strong buy”). It recently announced that 96 of its 135 licensed affiliated hospitals are included among The Joint Commission’s list of Top Performers on Key Quality Measures program for 2012. This was on the basis of an accountability measure for which it reports data to The Joint Commission. The hospitals met a 95 percent performance threshold for every measure. The stock price has risen 5.5% over the past month, better than the 4.1% increase the S&P 500 has seen over the same period of time. EPS have been growing in excess of 100% in the latest 3 quarters and at market capitalization of $14.652B the previous closing price $33.05 is above 50 day moving average of $29.70. The Company which owns, manages and operates hospitals not only pays a dividend of 6.05% to its shareholders, its price to sale ratio is 0:42 which is good by industry standards.
In a nutshell investors can view the hospital sector as huge beneficiaries of Obamacare. The Affordable Care Act means that about 33 million people currently not covered by health care will have insurance by 2016. The hospitals have a resoundingly positive future and a huge influx of new customers resulting in net revenue growth. The definite bias toward health care is slowly shifting toward the hospital sector and stock movements of big league players like UHS, HCA, and THC only substantiate this.
The conventional idea is that stocks in this sector are rising due to Obama’s re-election but the fact of the matter is that the stocks have been on the rise since 2006. In my opinion this is a ripe time for investors to try to build positions in the above listed hospitals. It is perceived that the stocks could benefit as much as 80% in the long run.
SharmisthaB has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.