HCA shares gained $1.35 today in heavy trading upon news that the hospital finally brought its long-standing fraud investigations with the federal government to an end.
Some analysts kept their ratings for HCA intact and expressed confidence that the hospital company’s balance sheet was strong enough to handle the costs of the settlement.
Darren Lehrich of SunTrust Robinson Humphrey says the settlement will have a small impact of 3 cents – 5 cents per share on HCA’s earnings in first quarter of 2003. “To be frank, I’m not inclined to lower my estimates for 2003. I’m staying padded at $3.10 per share.”
HCA will post an after-tax charge of $395 million in the fourth quarter of 2002 to settle overstated cost reports and physician kickbacks, and pay for legal fees. (HCA recorded a charge for the $250 million payment it will make to Centers for Medicare and Medicaid to resolve outstanding Medicare cost report issues in fourth quarter 2001.) The estimated after-tax cash amount is $455 million.
Jefferies & Co. analyst Frank Morgan says HCA likely will use its revolving credit facility to pay the amount and access the debt markets to finance the $1.125 billion acquisition of Health MidWest System in Kansas City. If completed, the acquisition would slightly increase HCA’s long-term debt to about 60 percent from its current ratio of 54.7 percent.
Unlike Lehrich, Morgan did lower his 2003 estimates to $3.19 from $3.22. His estimate, however, does not assume the acquisition of Health MidWest, which may be slightly dilutive to earnings in 2003.
At the time this article was posted, Avondale Partners had not yet released new guidance on its 2003 estimates. Until speaking with HCA’s management, the firm said the impact of the settlement was unclear because of the unknown amount of attorney’s fees, timing of the payment and impact on interest expense, and impact on litigation expenses, which have been ongoing since the investigation began.
- ALEX B FRUIN INHERITANCE TRUST; CANDACE F STEFANSIC INHERITANCE TRUST; CANDANCE F STEFANSIC INHERITANCE TRUST; FRUIN, ALEX B TRUSTEE; FRUIN ALEX B INHERITANCE TRUST; STEFANSIC, CANDACE F TRUSTEE; STEFANSIC CANDACE F INHERITANCE TRUST; STEFANSIC CANDANCE F INHERITANCE TRUST
- ROSS, BRIDGETT D
- COOKE, ETHEN LANYARD TRUSTEE; COOKE, ETHEN LEWIS ESTATE
- JACOBS, JESSICA ALEXANDRA; JACOBS, ERIKA BESS