Veteran hospital analyst Gary Lieberman at Wells Fargo expects that the Supreme Court's ruling Thursday safeguarding health insurance exchange subsidies will be the last major challenge to the Affordable Care Act. As a result, he has upgraded shares of locals HCA Holdings and Community Health Systems as well as Tenet Healthcare — even though they soared Thursday — to 'outperform' from 'market perform.' Notably, he left intact his lower rating on LifePoint Hospitals. Overall, Lieberman says the hospital sector should now have solid long-term profit prospects.
This post has been updated to correct the info on Deutsche's call
Several investment firms tracking Acadia Healthcare on Thursday updated their models for the Franklin-based operator of behavioral health facilities after its Q1 report, which included word of three acquisitions in the United Kingdom. Analysts at Jefferies have hiked their price target to $88 from $76 while their peers at Cantor Fitzgerald now see Acadia climbing to $84 instead of $70. And Wells Fargo researchers have upgraded the stock to 'outperform' from 'market perform.'
Not everyone is quite that upbeat, though: At Deutsche Securities, veteran analyst Darren Lehrich has reiterated his 'buy' rating, saying he expects more acquisitions this year. But he has raised his target to "only" $77 from $72.
Investors appear to be paying more attention to Lehrich's move than to the more positive takes. At about 1:15 p.m., Acadia shares (Ticker: ACHC) were down slightly to $68.61 on volume that already had topped the daily average. So far this year, they've risen about 12 percent.
Shares of AmSurg jumped more than 4 percent Thursday — and closed within 3 percent of their all-time high — after analysts at Stephens launched coverage of the ambulatory surgery and physician services company with an 'overweight' rating at $77 price target. That last number is the highest on the Street and $10 above the median target. It leaves more than 20 percent of upside for AmSurg (Ticker: AMSG), which already has climbed 16 percent year to date.
The limited partner units of Delek Logistics Partners (Ticker: DKL) fell about 3 percent to $41.59 Thursday after Barclays analyst Richard Gross reiterated his 'hold' rating. Gross has a $45 price target for the company, which Wells Fargo Securities' Roger Read and Lauren Hendrix say would benefit big time from any deal between Delek US Holdings and Alon USA Energy.
Wells Fargo analysts have launched coverage of Corrections Corp. of America shares with a 'market perform' rating and a price target of $37 to $39. (Competitor GEO Group got the same rating from the Wells team.) CCA shares (Ticker: CXW) closed Friday trading at $37.17 and have risen about 10 percent over the past six months.
Wells Fargo analyst Gary Lieberman has downgraded his rating for both Community Health Systems and HCA Holdings to 'market perform' from 'outperform,' saying the companies could be affected by the Supreme Court's decision to hear King v. Burwell, a circuit case related to federal insurance subsidies.
Lieberman's move is notable because analysts' views of hospital stocks have in recent months been overwhelmingly positive based on health reform and Medicaid expansion expectations. Lieberman also cut his CHS price target to $48 from $52 and his HCA target to $64 from $70.
Shares of CHS (Ticker: CYH) fell nearly 4 percent Wednesday to $46.85 and were down another percentage point Thursday. Shares of HCA (Ticker: HCA) dropped about 2 percent to $64.84 Wednesday are were down a little more Thursday.
Veteran Wells Fargo analyst Gary Lieberman says the guidance raise by HCA Holdings Wednesday looks to be on the conservative side given that the benefits of health care reform aren't going to end anytime soon. He has reiterated his 'outperform' rating on shares of HCA, which jumped 10 percent (Ticker: HCA) to a record high. On the flip side, Paula Torch at Avondale tells Investor's Business Daily that HCA is proving (again) to be best in class.
Gary Lieberman at Wells Fargo Securities is in the camp that thinks Glenview Capital's takeover of the Health Management Associates board of directors may end up adding to Community Health Systems' takeover tab by early next year. Lieberman doesn't think the $7.6 billion deal will get called off, but Glenview will not look at Franklin-based CHS as a white knight as the former board did — even though it owns more than 9 percent of CHS.
Still, there are two things to think about from CHS' end: First, it would be easy to hold firm on the price because HMA's Q2 numbers and outlook were not good. Second, the extra money question could be resolved by a decent rise in CHS shares. The acquisition of HMA includes a $3.28 stock component that is now worth less than $3. But if CHS stock (Ticker: CYH) manages to climb back to its June highs thanks to a better Q3, its offer for HMA might be sweetened just enough to appease Glenview.
UPDATE: After starting to fade around noon Central, CHS shares (Ticker: CYH) were down almost 10 percent at 1:45 p.m.
A number of Wall Street analysts have come to the defense of Community Health Systems after the local hospital chain issued a second-quarter earnings warning and said it has been subpoenaed a second time by government investigators looking into its Medicare admissions practices.
The analysts’ words of moderation have helped limit the losses for CHS shares, which fell more than 17 percent after hours Thursday. As about 10:40 a.m., CHS (Ticker: CYH) was off 8.3 percent to $43.37. Volume was very heavy, with 5.3 million changing hands in less than two hours. The stock’s daily average is 1.1 million shares.
Here’s an overview of some of the commentary from analysts this morning:
• Gary Lieberman at Wells Fargo Securities pointed out that, despite the Q2 profit warning, the company didn’t cut its implied guidance for the second half of the year and advised investors to “use any sustained weakness in the stock as a buying opportunity, all else equal.”
Speaking to the Department of Justice’s investigation, Lieberman thinks the second subpoena doesn’t change the path of the process but is more about detailing CHS’ responses to the government’s questions to date.
• Similarly, Morgan Stanley analysts say the bad news from Thursday evening “is more than fully reflected” in the shares of CHS.
• Kevin Fischbeck at Bank of America Merrill Lynch says the guidance cut and subpoena news aren’t as bad as they look. He has reiterated his ‘buy’ recommendation.
• Deutsche’s Darren Lehrich reiterated his ‘buy’ rating and $59 price target, citing the company’s strong long-term track record. But he is more cautious about the fact that the DOJ’s investigation appears to be getting broader and that the agency wants to speak specifically to a CHS division president and a corporate senior vice president.
“These revelations lead us to believe that the government investigation is gaining momentum and expanding, thus making a path to settlement over this CY look more elusive,” Lehrich wrote.
• At Credit Suisse, Ralph Giacobbe has the harshest reaction we’ve seen so far, cutting his price target for CHS to $50 from $61. He says the Street had priced in lower bad debt expenses as the Affordable Care Act took hold.
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