Analyst Shelley Gnall said healthcare volumes slowed in 2010, as has been the case after previous recessions. She saw no near-term factors to drive a recovery, and after two years of aggressive cost-cutting and continuing pressures on Medicaid rates, hospitals have fewer opportunities to ease top-line pressures.
Goldman Sachs kept a “neutral” view on hospital stocks. “We expect hospitals will remain discounted and range-bound, pending meaningful jobs growth, the key catalyst to drive volumes and earnings growth higher,” Ms. Gnall wrote. “Meanwhile, (merger and acquisition) potential should limit downside.”
Brighter picture for Community Health
However, Ms. Gnall said for-profit Community Health Systems offers the most favorable risk-reward profile because its markets have relatively low unemployment and the company has an attractive merger-and-acquisition pipeline to support growth.
She said Community Health’s bid to acquire rival Tenet Healthcare would not change this outlook. Community has offered to pay $7.3 billion, including assumed debt, but Tenet rejected the offer, saying it was too low and “opportunistic,” given weak industry stock valuations.
Community Health has refused to drop its offer and is now preparing for a hostile takeover of Tenet.
Read the Forbes report on the hospital sector.
Read more coverage on the hospital sector:
– Americans’ Reluctance to Seek Treatment Hurting Publicly Traded Healthcare Firms
– Acquisitions of Non-Profit Hospitals by For-Profits on the Rise, Drawing Conce-
