Shares of Vanguard Health Systems were down significantly for a second consecutive session Thursday after an analyst following the company slashed his price target and said the company's decision to cut its capital spending will limit its ability to grow its margins.
Wells Fargo analyst Gary Lieberam on Thursday downgraded Nashville-based Vanguard to 'market perform' from 'outperform.' Even more drastically, he slashed his price target range to $10 to $12 from $19 to $21. At about 2:30 p.m. Central, Vanguard (Ticker: VHS) was down more than 5 percent to $10.16, a slump that came the day after it fell almost twice as much following the release of its earnings.
Key to Lieberman's call is Vanguard's decision to cut its 2012 capital spending plans by more than 16 percent to between $335 million and $365 million. Through the first six months of its fiscal year, the company spent $137 million, which was up 73 percent from a year ago.
"We are concerned that the company’s planned reduction [...] will lengthen the period of time it takes the company to make operational improvements and expand margins," Lieberman wrote in a note to investors. "[T]his had been a significant part of our bullish thesis on the company."
Lieberman said the lower cap ex guidance "appears to be due in part to reimbursement cuts along with slow payments by the state of Illinois which have caused an increase in receivables." He has cut his 2012 earnings-per-share estimates to 71 cents from 81 cents and his 2013 outlook to 81 cents from $1.03.
Vanguard has a long laundry list of capital spending commitments stemming from its various acquisitions in recent years. The biggest of them are for Detroit Medical Center, where it said it would spend $850.0 million by the end of 2015 to revamp a chunk of that large system's facilities.
Despite Lieberman's relative caution, another analyst on Thursday said investors should keep the faith in Vanguard shares. Leerink Swann's Jason Gurda reiterated his 'outperform' rating and said its stock remains attractive despite its weaker-than-expected second quarter.
POSTDATA: WARRANTY DEEDS