NEW YORK (AP) -- Even though hospital operator stocks have done well so far in 2012, the stocks are inexpensive and should trade higher, a Susquehanna Financial Group analyst said Friday.
Analyst A.J. Rice maintained "Positive" ratings on six hospitals stocks, including HCA Holdings Inc., the largest U.S. hospital chain. He said most companies in the sector are forecasting low earnings growth, and Wall Street agrees, but it's possible the companies will do better than expected.
Rice noted that Tenet Healthcare Corp. is the only publicly traded hospital chain that is projecting strong growth in its earnings before interest, taxes, depreciation and amortization.
The analyst rates Tenet shares "Neutral," and has "Positive" ratings on Community Health Systems Inc., Health Management Associates Inc., LifePoint Hospitals Inc., Universal Health Services Inc., and Vanguard Health Systems Inc. along with HCA Holdings.
He raised his price target on Community Health shares to $32 from $27.
Rice noted that hospital stocks have done a bit better than the S&P 500 in 2012, and business has stabilized. In the fourth quarter, overall revenue from hospitals open at least a year improved at same rate as third quarter. Patient volumes have edged higher as the economy has improved, and growth in bad debt costs — or bills that are not expected to be repaid — have slowed down.
He added that all of the hospital stocks reported greater operating cash flow in 2011, and several of the companies were able to refinance their debt because of the capital markets have improved. That will help to reduce costs and provide financial flexibility to buy back shares, make acquisitions and in the case of Community Health, possibly spin off certain assets.
Almost all of the stocks gained in Friday trading. HCA added 2 cents to close the week at $25.44. LifePoint stock rose 45 cents to $39.20, Community Health shares picked up 37 cents to $24.45, and Health Management shares gained 13 cents to $7.03. Universal Health Services stock added 42 cents to $44.53.
In the group, only Tenet shares slipped in the last session of the week, ending down 10 cents at $5.58.