Sector Snap: Hospital stocks slide

Shares of several hospital operators slid in morning trading Wednesday, the first session after Health Management Associates Inc. lowered the top end of its 2013 outlook and forecast disappointing first-quarter results.

Naples, Fla.-based Health Management said after the market closed Tuesday its admissions didn't live up to expectations, and several factors were making it harder for patients to pay their bills.

The company runs 71 hospitals in non-urban areas, and most of its locations are in the Southeast. It said it expects to report income of 12 to 13 cents per share in the first quarter, excluding one-time items, on about $1.48 billion in revenue.

Analysts had called for net income of 23 cents per share and $1.55 billion in revenue, according to FactSet.

Health Management Associates is now forecasting full-year net income of 86 to 95 cents per share from continuing operations. In January the company projected net income of 86 cents to $1.01 per share.

Analysts expected net income of 88 cents per share.

Citi analyst Gary Taylor said in a research note he expected hospital stocks to trade lower after Health Management's announcement. But the analyst said he remains a buyer on stocks in the sector, due to upcoming coverage expansions under the health care overhaul.

The overhaul will expand coverage to millions of people starting mostly next year when the government expands the state-federal Medicaid program and starts providing income-based tax credits to help people buy coverage. Analysts expect hospitals to be one of the biggest beneficiaries from the overhaul, because it will reduce the number of uninsured patients they treat.

Health Management shares plunged $1.61, or 12.8 percent, to $10.98 in morning trading. Shares of competitor HCA Holdings Inc. fell 99 cents, or 2.6 percent, to $36.64, and Tenet Healthcare Corp. dropped $2.02, or 4.6 percent, to $41.50.