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The Zacks Analyst Blog Highlights: HCA Holdings, Universal Health Services, Lifepoint Hospitals, Tenet Healthcare and Accenture

Zacks Equity Research

For Immediate Release
Chicago, IL – August 13, 2014 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the HCA Holdings Inc. (HCA-Free Report), Universal Health Services (UHS-Free Report), Lifepoint Hospitals Inc. (LPNT-Free Report), Tenet Healthcare Corp. (THC-Free Report) and Accenture (ACN-Free Report).
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Here are highlights from Tuesday’s Analyst Blog:

4 Hospital Stocks to Inject into Your Portfolio
The S&P 500 has been on a historic run for the past two plus years, but has seen some pullback in recent weeks.  Analysts had been giving the warnings signs of a market correction for several months, and in August, the market began to contract.  
Given this sustained growth for the index, and its recent pull-back, it is now becoming more difficult to find strong stocks let alone low risk segments. Yet, there is one segment that has consistent demand, increasing users, and high technology innovation, which is beginning to see significant upticks in earnings, and increased revenues. 

Healthcare: Specifically Medical-Hospitals

After the first six months of the Affordable Care Act’s (:ACA) implementation, Hospitals have seen a sizable uptick in newly insured patients utilizing hospitals for a wide range of services. This has caused revenues for the hospitals to increase during this time frame.   
The main drivers behind the revenue increase are maternity care, and a strong uptick in other procedures by previously uninsured people who just enrolled in the new Health Care Law. It is assumed that the previously uninsured people were delaying procedures due to the cost. Further, hospitals have seen more activity from their Medicaid programs as well. Another plus to the top line. 

It is estimated that around 8 million people had signed up with health-law marketplaces in the eight months between September ‘13, and April ‘14, not accounting for the millions who have signed up for the state run Medicaid programs.  It is estimated that 33% to 50% of all Hospital gains are due to the new ACA law.  This indicates that when more people sign up for the exchanges, Hospitals will see their revenues increase even further.
Further, many hospitals have seen significant increases in Emergency Room visits, even though new enrollees are given the option to seek services at urgent care centers or community doctor’s offices. 

Finally, hospitals have begun to see a significant drop in uninsured admissions, which has helped both the top and bottom lines. This trend is expected to continue into the near future. 

While in every capitalistic system, there are winners and losers, not all hospitals are seeing a strong influx of new patients, or increased ER usage. But we have found 4 stellar hospitals that have seen strong patient growth, and increased revenues. 

Hospitals to Consider for Your Portfolio

HCA Holdings Inc. (HCA-Free Report) a Zacks Rank #1 (Strong Buy) reported inline Q2 earnings per share, and beat the Zacks Consensus Revenue Estimate by $179 million. The company experienced continued growth in exchange and Medicaid volumes, which attributed to about 1/3 EBITA via the ACA law, and 2/3 to improved core operations. Medicaid admissions increased 32% YTD, and saw uninsured admissions decline 48%. Exchange admissions saw 5,500 new patients in Q2 compared to 1,700 in Q1. Further, the Hospital saw new exchange admissions of 1,300 in April, 2,000 in May, and 2,200 in June. New admissions are expected to tapper a bit going past June. 

These strong Q2 numbers have caused the Zacks Consensus Earnings Estimates to rise across the board: In the past 30 days, EPS estimates for Q3, Q4, FY 14, and FY 15 have all increased. Q3 estimates have risen from $0.90 to $0.96, Q4 increased from $1.05 to $1.10, FY 14 jumped from $3.71 to $4.21, and FY 15 rose from $4.37 to $4.68. 

Universal Health Services (UHS-Free Report) a Zacks Rank #1 (Strong Buy) posted earnings and revenue beats during their Q2 earnings call. These beats were due to increased volume, pricing growth, reduction in uninsured volumes, and improvement in core markets. The company saw a 3.6% increase in admissions, above the forecast of -0.3% and a -0.5% decline in Q1 14; which was primarily due to the ACA, and newly insured patients coming to the hospital. The hospital also decreased their uninsured admissions levels as well, increasing total revenue. 

During the Q2 announcement, the board stated that they have authorized $400 million in share repurchases, replacing the previous authorization that had less than $1 million remaining. Further, management also increased their dividend from $0.05 to $0.10. 

Most importantly, management raised the full year guidance from between $4.80-$5.10 to a range of $5.55-$5.85. This has caused the Zacks Consensus Earnings Estimates for FY 14 to jump from $5.11 to $5.81 in the past 30 days. Moreover, Q3, Q4, and FY 15 Earnings Estimates have increased over the past 30 days as well. Q3 has risen from $1.20 to $1.36, Q4 has increased from $1.29 to $1.46, and FY 15 jumped from $5.75 to $6.27.

Lifepoint Hospitals Inc. (LPNT-Free Report), a Zacks Rank #2 (Buy) was another hospital with strong Q2 earnings results; beating the bottom line by $0.29 and coming in $24 million ahead of the Zacks Consensus Revenue Estimate. Much of the Q2 gains were attributed to the benefit from ACA exchanges. Moreover, in expansion states (states with an exchange), the company saw a 67% decrease in uninsured admissions. Further, management stated that they expected between 10%-15% new individuals eligible for exchange products, but actually 25%-30% were new individuals. This number is expected to grow out through 2015. Finally, the company saw an increase of 2.0% year over year in adjusted admissions growth, which was the strongest since Q4 ’06. 

Due to the strong Q2 performance, management increased FY 14 guidance from a range of $2.38-$2.78 to $2.99-$3.20, and EBITA from a range of $560-$590 million to a range of $605-$620 million. 

The increased guidance caused the Zacks Consensus Earnings Estimates for Q3, Q4, FY 14, and FY 15 to increase over the past 30 days. Q3 Estimated EPS risen from $0.64 to $0.73, Q4 rose from $0.83 to $0.88, FY 14 jumped from $2.70 to $3.11, and FY 15 increased from $3.15 to $3.53.

Tenet Healthcare Corp. (THC-Free Report), a Zacks Rank #2 (Buy) crushed their earnings estimates for Q2 2014. The Zacks Consensus Earnings Estimate was at $0.00, but THC came in at $0.17, and also solidly beat the Zacks Consensus Revenue Estimate by $113 million. And you guessed it, the main driver behind the earnings beat was the ACA law. 

During the quarter, the company saw a 4.0% increase in adjusted admissions (strongest in past 10 years), underlying the benefits from the ACA (Medicaid, and the exchanges). Further, the company saw additional positive news come from their payer mix, and commercial admissions. Management stated that they feel well positioned to gain from the benefits from their high exposure to the ACA law, and the exchanges. Moreover, the company saw a 54% decline in uninsured admissions within their exchange states (combined exchange states and non-exchange states was a 22% decline). 

Due to the strong showing in Q2, management conservatively raised their EBITA guidance by $50 million to $1.85-$1.95 billion for FY 14. This has caused the Zacks Consensus Earnings Estimate for Q4, FY 14, and FY 15 to increase in the past 30 days. Q4 increased from $0.91 to $1.26, FY 14 rose from $1.28 to $1.44, and FY 15 increased from $2.59 to $2.83.

Bottom Line

Hospital stocks are reaping the benefits from the ACA law, its exchanges, and Medicaid. As we are just 6 months into the inaction of the law, we are beginning to separate the winners and losers, and the Hospitals are winning! So if you are inclined to look into the Hospital segment, we suggest looking into the four above mentioned companies for strong positive earnings growth through 2014, and into 2015. 

Accenture Positive on Outsourcing Business

We issued an updated research report on Accenture (ACN-Free Report) on Aug 8, 2014 post its solid third-quarter results. Revenues also improved on a year-over-year basis reflecting an increased focus on the Outsourcing business, new bookings and continuous return of shareholders value. Moreover, the company provided a modest guidance.

Accenture’s solid performance across insurance, banking and healthcare segments reflects strong demand for its services, boosting long-term growth prospects. Accenture has been steadily gaining traction in its Outsourcing business. The success is primarily attributed to the increase in demand for technology that can improve operating efficiencies and save costs. The upward trend continued during the first nine months of fiscal 2014, with outsourcing revenues growing 6% on a year-over-year basis. The improvement was mainly due to the growing demand for Accenture’s outsourcing solutions driven by most of its operating industry groups across all geographic regions.
Over the past couple of years, Accenture has made several acquisitions to expand its product and service offerings and cater to a diverse clientele. During fiscal 2013, Acquity Group Ltd. — a digital marketing and technical services provider — was acquired along with other smaller companies that complement and synergize with Accenture’s current operations. Acquisitions are likely to enable Accenture to enter new markets, diversify and broaden its product portfolio and maintain its leading position. Moreover, the company’s continued acquisitions are expected to be a good contributor to its revenue stream.
Also, Accenture has a strong balance sheet. As of May 31, 2014, the company had cash and cash equivalents of $4.05 billion and long-term debt of $26.5 million, bringing the net cash position to $4.02 billion, higher than $3.65 billion (net cash) in the previous quarter. This enables the company to look for strategic acquisitions and invest in growth initiatives. Strong operating cash flow has helped Accenture to return cash through regular quarterly dividend payment and share repurchases.
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