Hospitals show good vital signs

JPMorgan thinks these health care providers are a healthy bet.

By Benzinga Dec 19, 2012 2:06PM

Surgeon with paperwork copyright Creatas Images, JupiterImages CorporationBy Nelson Hem

The hospital stocks featured here have seen some large gains, but a research call from JPMorgan Chase (JPM) Tuesday indicated even more upside in the industry.

Community Health Systems (CYH), HCA Holdings (HCA), Tenet Healthcare (THC) and Universal Health Services (UHS) were all initiated with "overweight" ratings and price targets higher than the consensus estimate.

The analyst also started Lifepoint Hospitals (LPNT) at "overweight," but saw less potential upside in Health Management Associates (HMA) and Vanguard Health Systems (VHS). They both were started with "neutral" ratings.

Community Health Systems

This Franklin, Tenn., provider of hospital health care services has a market capitalization of about $2.8 billion. The long-term earnings per share (EPS) growth forecast is more than 1%, and the price-to-earnings (P/E) ratio is less than the industry average. But the return on equity is only about 9%. The short interest was more than 5% of the float at the Nov. 30 settlement date.

Only 10 of the 22 analysts surveyed by Thomson/First Call who follow the stock recommend buying shares, though none recommend selling. Their mean price target, or where they expect the shares to go, is hardly any higher than the current share price. But JPMorgan's new $38 target represents more than 16% upside.

If one ignores a brief spike in the share price following the presidential election, the stock would be currently trading near a 52-week high. The share price is about 76% higher year to date. The stock has outperformed the likes of HCA Holdings and Lifepoint Hospitals over the past six months.

HCA Holdings

This owner and operator of hospitals and other health care facilities sports a market cap of about $14 billion. It is headquartered in Nashville. Its P/E ratio is much lower than the industry average, and the long-term EPS growth forecast is more than 11%. The operating margin is higher than the industry average and the return on investment is almost 18%. The short interest is more than 3% of the float, the second highest number of shares sold short this year.

All but three of the 24 analysts surveyed recommend buying shares; nine of them rate the stock a "strong buy." They believe the stock still has some room for growth, as their mean price target is more than 11% higher than the current share price. JP Morgan's $39 target represents about 18% potential upside.

Despite pulling back a bit in the past week following the announcement of a secondary offering, shares are more than 44% higher year to date. But the stock has underperformed competitors Health Management Associates and Tenet Healthcare over the past six months, though it has outperformed the S&P 500.

Tenet Healthcare

This Dallas health care services company has a market cap near $3.5 billion and just reached a new 52-week high. The forward earnings multiple is less than the industry average P/E ratio. The long-term EPS growth forecast is more than 12%, but the return on equity is more than 7%. The short interest is almost 8% of the float, the second highest number of shares sold short this year.

All but five of the 21 polled analysts recommend holding shares, but none recommends selling. JPMorgan's $41 target represents about 20% potential upside and is a level shares have not seen since 2005.

The share price is more than 61% higher than six months ago. The stock has outperformed competitors HCA Holdings and Universal Health Services, as well as the broader markets, over the past six months.

Universal Health Services

The market cap of this owner and operator of hospitals and health care centers is about $4.5 billion, and the company offers a dividend yield near 0.4%. The P/E and PEG ratios are a lower than the industry average, and the long-term EPS growth forecast is more than 23%. It has a return on equity of more than 16%. Shares sold short are a little over 1% of the float.

Of the 18 analysts polled, 16 rate the stock at "buy" or "strong buy." The $59 price target set by JPMorgan is more than 18% higher than the current share price. The share price has not been above $50 since July of 2011.

This stock also spiked right after the presidential election, and shares have almost reclaimed that level after rising about 8% in the past month. Over the past six months, the stock has outperformed the broader markets but underperformed competitors Community Health Systems and HCA Holdings.

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