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For-profit hospital operators are expected to report modest profits this earnings season, even though most Americans have recovered from last quarter's historically severe flu season that boosted first-quarter results, analysts say.
U.S. hospitals, which have struggled with reduced insurance payments in recent years, have also suffered from a slump in admissions as more Americans seek cheaper treatment from pharmacies, outpatient clinics and other nontraditional care centers.
However, analysts say the outlook for hospitals remains strong as the group invests more in outpatient facilities that generate fatter profit margins and slashes spending to counter sluggish admissions. Additionally, the recent tax law changes have given a boost to for-profit hospitals, allowing them to investment more on aging infrastructure.
Here’s what analysts are watching for this quarter. All earnings-per-share estimates are based on adjusted earnings projections by analysts surveyed by Thomson Reuters:
Hospital earnings kick off Wednesday with HCA Healthcare, the largest investor-owned U.S. hospital operator.
Investors will want to hear more on its investments outside its hospitals. The Nashville-based hospital operator, which specializes in trauma and surgical centers, has been aggressively expanding its ambulatory footprint and has purchased a string of hospitals in recent years, offsetting the slow down in admissions.
Ana Gupte, senior health-care services analyst at Leerink Partners, told CNBC that she expects HCA's second-quarter earnings will at least meet Wall Street's expectations of $2.16 a share with "the potential for a beat and even a raise for the full year." Revenue is expected to come in at $11.33 billion.
"HCA is going to be in a good place," Gupte said, adding the recent changes to the U.S. tax code are an advantage for the for-profit hospital, allowing it to make more acquisitions and grab more market share.
Investors will be looking for more details on a possible sale of Tenet Healthcare’s health management subsidiary when the hospital operator reports quarterly numbers next month.
Tenet, which is in the middle of a cost-reduction plan, said it would make a decision in the first half of 2018 on the sale of subsidiary Conifer Health Solutions. Conifer, which provides software, debt collection and other services to hospitals and physician groups, produced $404 million in sales last quarter.
"A sale is one thing that would help deliver on the balance sheet and generate some value in a multiple above what the stock is trading at,” Brian Tanquilut, health-care services equity researcher at Jefferies, told CNBC.
Wall Street expects Tenet will report second-quarter earnings of 25 cents a share on revenue of $4.6 billion.
Analysts will want to hear about organic growth in Universal Health Services' behavioral health segment and acute-care business when it reports earnings on Wednesday, Tanquilut said.
Gupte said Universal, the country's largest psychiatric hospital chain, will likely produce earnings in line with estimates. "The acute segment appears more evenly driven by volumes and price while the behavioral segment should continue to improve driven by easier comps," she said.
The company is expected to report second-quarter earnings of $2.39 a share on revenue of $2.72 billion.
Tennessee-based LifePoint Health, which reports second-quarter earnings Friday, will be expected to provide more details on its sale to private equity firm Apollo Global Management that was announced Monday.
The $5.6 billion deal brings together LifePoint and Apollo's RCCH HealthCare Partners, two hospital companies that operate mainly in the rural United States.
Rural hospitals have been hit disproportionately hard by changes to health-care laws that have cut their reimbursements from insurers. They also get hit with significantly fewer and substantially poorer patients than urban hospitals chains. It's put at least 83 rural hospitals out of business since 2010, according to the Chartis Center for Rural Health.
LifePoint Health, which has a strong presence in rural regions of the U.S., has been no exception to getting hit by the changes in the laws. LifePoint is forecast to produce earnings of $1.08 per share on revenue on $1.58 billion.