Sector Snap: Analyst lowers hospital estimates

NEW YORK -- A Raymond James analyst lowered his third-quarter estimates for three hospital operators on Tuesday, saying it looks like patient admissions will be lower than he expected.

The stocks declined in morning trading as a spate of weak corporate earnings put pressure on the market. The S&P 500 index fell about 25 points, or 1.7 percent.

Analyst John Ransom said it looks like admissions got weaker during the quarter, particularly in September, while other trends have been unfavorable. He lowered his net income estimates for Community Health Systems Inc. and Universal Health Services Inc., which will report their third-quarter results later this month, and Tenet Healthcare Corp., which will make its report in November.

"Given the mixed results to-date, we believe a more conservative slant is necessary heading into reported results by the other hospital operators," Ransom wrote.

HCA Holdings Inc., the largest U.S. hospital chain, gave a weak third-quarter forecast on Oct. 16. The company posted net income and revenue that fell a bit short of Wall Street estimates.

On Monday Health Management Associates Inc. posted net income and revenue that fell short of expectations. The company said admissions at hospitals open at least a year fell 6.4 percent. HCA said admissions of uninsured patients fell and observational stays, which are not counted as admissions, were up. Its results were also hurt by a decreased in admissions due to Hurricane Isaac and one-time costs.

Ransom said he does not expect much improvement in hospital operator earnings for the rest of 2012. He said the stocks are trading more on the presidential election than on business trends. In his view, the stocks will rise 10 to 15 percent if President Obama is re-elected because health care reform could lead to stronger growth starting in 2014. If former Massachusetts Governor Mitt Romney is elected he thinks investors will be concerned about their business fundamentals and the potential fiscal cliff in 2013, and the shares will decline somewhat.

In midday trading Health Management Associates shares lost 31 cents, or 4.1 percent, to $7.18. HCA stock fell $1, or 3.3 percent, to $29.75. Shares of Community Health Systems lost 68 cents, or 2.5 percent, to $26.73 while Universal Health Services stock gave up 86 cents, or 1.9 percent, to $43.36 and Tenet shares slipped 78 cents, or 3.3 percent, to $23.03.

Ransom did not change his estimates for LifePoint Hospitals Inc. LifePoint shares fell 88 cents, or 2.2 percent, cents to $39.76.