Wall Street is still selling off health care stocks

https://www.axios.com/newsletters/axios-vitals-64abbaf8-c86f-4ac1-8561-525b0fd33c25.html?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosvitals&stream=top

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Yesterday, UnitedHealth Group posted $3.5 billion of profit in the first quarter — its second-most profitable quarter ever — and collected more than $60 billion of revenue, Axios’ Bob Herman reports.

Yes, but: UnitedHealth’s stock price tanked by 4%, which consequently dragged down shares of the other major health insurers and hospital chains. Cigna’s stock price plummeted 8%, and Anthem and Humana were close behind. HCA tumbled 10%.

Driving the news: Wall Street remains fearful of “Medicare for All” becoming a reality, and UnitedHealth CEO Dave Wichmann tried to get ahead of the message by telling investors that single-payer would “jeopardize” people’s care.

  • Many investment bank analysts were perplexed by the sell-off, considering that UnitedHealth has more cash than it knows what to do with.
  • Steven Halper of Cantor Fitzgerald wrote to investors: “What more can you ask for? Take advantage of poor sentiment.”

The big picture: Medicare for All discussions matter far more to Wall Street right now, and that makes the industry’s Q1 financial reports a lot less important.

 

 

 

CHS sees massive Q3 net loss amid weak volume, aftershocks of HMA settlement

https://www.healthcaredive.com/news/chs-sees-massive-q3-net-loss-amid-weak-volume-aftershocks-of-hma-settlemen/540868/

Credit: Rebecca Pifer / Healthcare Dive, Yahoo Finance data

 

Dive Brief:

  • Community Health Systems reported third quarter net operating revenues of $3.5 billion, a 5.9% decrease compared with $3.7 billion from the same period last year but slightly higher than analyst expectations.
  • In its earnings release after market close Monday, the Franklin, Tennessee-based hospital operator also disclosed a massive shareholder loss in the quarter of $325 million, or $2.88 per diluted share. CHS had a net loss of $110 million, or $0.98 per diluted share, in Q3 2017.
  • Lower volume was partially to blame, as the quarter saw a 12.4% decrease in total admissions and a 12.2% decrease in total adjusted admissions compared with the same period in 2017. The report also pointed the finger at the financial aftershocks of its troubled purchase of Health Management Associates (HMA), along with loss from early extinguishment of debt, restructuring and taxes.

Dive Insight:

CHS, one of the largest publicly traded hospital companies in the U.S., reported its highest operating cash flow since the second quarter of 2015, according to Jefferies. The third quarter figure of $346 million is also significantly higher than the $114 million from the same quarter last year.

Similarly, volume and revenue didn’t tank as heavily on a same-store basis as they did overall. Same-facility admissions decreased just 2.3% (adjusted admissions by 0.8%) compared with a year ago. Net operating revenues actually increased by 3.2% during the quarter compared with last year, beating analyst expectations.

But declining admissions show how hospital operators continue to struggle under the fierce headwinds 2018 has blown their way so far. CHS is clearly not immune, as the 117-hospital system faces ongoing operational challenges, bringing in financial advisers earlier this year to restructure its copious long-term debt.

The 20-state hospital operator continues to deal with the fiscal fallout from its roughly $7.6 billion acquisition of Florida hospital chain HMA in 2014. The Department of Justice accused the 70-facility HMA of violating the Stark Law and the anti-kickback statute for financial gain between 2008 and 2012, activities CHS reportedly was aware of prior to the merger.

Just last month, CHS announced a $262 million settlement agreement ending the DOJ investigation into HMA’s misconduct. However, that liability was adjusted during the third quarter and, taking into account interest, now totals $266 million. The fee will reportedly be paid by the end of this year.

The settlement also slapped an additional $23 million tax bill on the 19,000-bed system under recent changes to the U.S. tax code.

But that’s not the only regulatory brouhaha CHS has dealt with this quarter.

Since August, CHS has been under civil investigation over EHR adoption and compliance. Annual financial filings show that the company received more than $865 million in EHR incentive payments between 2011 and 2017 through the Health Information Technology for Economic and Clinical Health Act, payments that investigators believe may have been overly inflated.

To deal with the burden, CHS has continued its portfolio-pruning strategy into the third quarter (although a recent Morgan Stanley report notes the system has a very high concentration of weak facilities, and those at risk of closing, relative to its peers). 

During 2018 so far, CHS has sold nine hospitals and entered into definitive agreements to divest five more. The earnings report also divulged CHS is pursuing additional sale opportunities involving hospitals with a combined total of at least $2 billion in annual net operating revenues during 2017, taken in tandem with the hospitals already sold.

The ongoing transactions are currently in various stages of negotiation, the report notes, but CHS “continues to receive interest from potential acquirers.”

CHS is cast in a better light when balance sheet adjustment and non-cash expenses are discarded, as well. Adjusted EBITDA was $372 million compared with $331 million for the same period in 2017, representing a 12.4% increase and suggesting the company can still generate cash flow for its owners in a more friendly atmosphere than the one Q3 provided.

But, though Q2 results were a bright spot in an otherwise gloomy year for the massive hospital operator, its shares have lost about 30% of their value since the beginning of the year (compared to the S&P 500’s decline of roughly 0.5%).

Jefferies believes that CHS should improve its balance sheet and drive positive same-store volume growth, along with speeding up divestitures to raise cash to pay down debt, in order to improve its stock performance.

 

 

Investors Cash Out of HCA Healthcare as Stock Soars to Record

https://www.bloomberg.com/news/articles/2018-08-14/investors-cash-out-of-hca-healthcare-as-stock-soars-to-record

Long-term shareholders were cashing out of HCA Healthcare Inc. in the second quarter, as the stock rallied to record highs in late June — levels since eclipsed by bigger gains this quarter.

Hedge funds Glenview Capital Management, Highfields Capital Management, Wellington Management Group, Magellan Asset Management and Harris Associates cut their stakes in the hospital chain, which saw its shares rise 17 percent in the first half and an additional 27 percent so far this quarter. The investment firms sold a combined 17.3 million shares, according to their latest 13F filings.

After being under pressure for nearly two years, hospitals have staged a comeback in 2018, outperforming most of their health-care peers with a 21 percent gain. The rally was led by Tenet Healthcare Corp., which has more than doubled, and HCA, which saw earnings and patient visits improve. HCA was also among hospitals uniquely benefiting from the U.S. corporate tax overhaul.

 

These Hospital Bonds Are on Life Support

https://www.bloomberg.com/gadfly/articles/2017-10-27/a-49-billion-hospital-emergency-heads-toward-junk-bonds

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Junk-bond buyers appear to have a blind spot when it comes to for-profit health care companies.

They’ve snapped up bonds of Tenet Healthcare Corp. and Community Health Systems Inc. despite the drastically souring outlook for both hospital operators. Some of this may be idiosyncratic or the result of specific investors’ strategies (or unwillingness to sell). Franklin Resources Inc., for example, now owns nearly 20 percent of Community Health’s total debt and more than half of its $1.9 billion of bonds maturing in 2019, according to recent filings compiled by Bloomberg.

In general, however, as credit investors plow into broad indexes of riskier assets, it appears they’re simply turning a blind eye to the ugly balance sheets of hospital operators amid an increasingly difficult backdrop. Federal programs like Medicaid are clamping down on costs. And the Trump administration’s various efforts to weaken the individual insurance market will potentially put hospitals on the hook for more uncompensated care as fewer people sign up for health care coverage.

Meanwhile, Tenet and Community Health made some questionable decisions in recent years to borrow billions of dollars to make acquisitions that now look pricey. These companies don’t generate a ton of cash at the best of times, and much of what they do have now goes to debt service rather than much needed hospital improvements.

CIRCLING THE DRAIN

It’s hard for companies to confront mountainous piles of debt when they don’t generate consistent cash flow.

These hospital operators have a narrowing field of options right now. Tenet recently tried, and failed, to sell itself, which sent its shares plunging on Thursday. Both hospitals report earnings within the next few weeks. If HCA Healthcare is any guide — the company pre-announced worse-than-expected third-quarter earnings last week — they won’t be pretty.

But still, no one in the bond market seems to care. Tenet’s bonds have soared 7.8 percent so far this year, even though its stock has fallen 13.3 percent. Community Health debt has gained 16.5 percent, four times the 4.1 percent gain in its shares.

DIVERGING FATES

Bond investors seem to be turning a blind eye to difficulties recognized by stock investors

This seems sort of ludicrous. One hedge fund manager, Boaz Weinstein of Saba Capital Management, sees this as an opportunity to short some of these companies’ junior bonds. Weinstein pointed out at a conference this month that Community Health’s $14 billion pile of debt is 20 times the value of its equity.

Unless the company’s fortunes turn around, it will be forced to reckon with its debt in painful ways for its business as well as the returns of creditors. It’s hard to see how the business could get better with President Donald Trump’s continuing attempts to torpedo health care insurance subsidies, which is widely expected to hurt hospital profitability.

Credit investors at some point are going to have to come to grips with this. Community Health and Tenet, along with HCA, account for $49 billion of debt in a broad U.S. high-yield bond index. This pile is looking increasingly vulnerable to a day of reckoning.

Hospital stocks sink after HCA’s earnings stumble

http://www.beckershospitalreview.com/finance/hospital-stocks-sink-after-hca-s-earnings-stumble.html

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Major for-profit hospital operators saw their share prices fall Tuesday after Nashville, Tenn.-based HCA Healthcare released its earnings for the second quarter, which fell below analysts’ estimates, according to Bloomberg.

HCA’s revenues increased 4 percent year over year to $10.73 billion in the second quarter of 2017, which fell below analysts’ estimate of $10.85 billion. The company ended the second quarter of this year with net income of $657 million, which was down slightly from $658 million in the same period of 2016.

After releasing its earnings, HCA shares fell 2.5 percent to $83.93. Dallas-based Tenet Healthcare shares dropped 7.3 percent to $19.57 and Franklin, Tenn.-based Community Health Systems shares fell 7.4 percent to $8.96, according to Bloomberg.