We downgrade our recommendation on Health Management Associates (HMA) to Underperform. Its third-quarter 2012 earnings per share of $0.18 missed the Zacks Consensus Estimate. We are wary about sustained volume pressure on the back of sluggish adjusted admissions.
The expected year-over-year decline in same hospital admissions implies declining volume trends for Health Management, and lackluster demand may worsen matters. Bad debt is another looming concern and may hurt earnings.
We refrain from suggesting the stock and are waiting to see if the company's business model and benefits from Obamacare can help Health Management to overcome the current headwinds and reimbursement uncertainties. We have a price target of $7.50, which is based on a P/E of approximately 9.3x our fiscal 2012 EPS estimate.
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