We reiterate our Neutral rating on
Health Management Associates
). Its second-quarter 2012 earnings per share of 21 cents matched
the Zacks Consensus Estimate. Adjusted earnings exclude 5 cents per
share for a swap arrangement and mark-to-market orientation. Net
income at Health Management declined 24% year over year to $36.9
million (or 14 cents per share).
Net revenues were $1,472 million in the second quarter versus
$1,225 million a year ago, up 20.2%. Net revenues from same
hospital (continuing operations) increased 6.1% to $1,299
On same hospital basis, occupancy dipped to 40.3% in the second
quarter from 42.7% in the prior-year quarter. Same hospital
admissions and adjusted admissions also declined 4.0% and 0.2%,
respectively, while surgeries and emergency room visits increased
2.9% and 3.8%, respectively.
For 2012, Health Management maintains its forecast for earnings
in the band of 80 cents and 90 cents per share. The forecast
excludes about $98 million (or 25 cents per share). The effect is
from mark-to-market orientation and interest rate swap as well as
Medicare and Medicaid HCIT incentive payments in the range of $90
million to $120 million.
Health Management expects same hospital admissions to decline in
the range of 1% to 3% for 2012 whereas the same hospital adjusted
admissions growth is expected to be in the range of -1% to 1%.
Health Management is engaged in ownership and operation of
general acute care hospitals in non-urban communities across the
U.S. The company is an active acquirer of underperforming hospitals
with a turnaround potential in high-growth markets. Health
Management's competitors, in niche markets may include
Community Health Systems
Health Management benefits from a gradual growth in admissions,
largely due to improvement in Emergency Room, sustained physician
recruitment and service development. Moreover, it is well placed to
expand margins from continuing operations and drive above-industry
average earnings growth. While the debt burden remains sizeable, we
are somewhat comforted that bad debt is no longer an area of
looming concern. Our Neutral recommendation is supported by a
short-term Zacks #3 Rank (Hold).
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