We upgrade our recommendation on
Health Management Associates
) to Neutral. The company reported third quarter adjusted
earnings per share of 18 cents missing the Zacks Consensus
Estimate by a penny.
Revenues (prior to provisioning for doubtful clients)
increased almost 19% year over year to $1,664.2 million, easily
surpassing the Zacks Consensus Estimate of $1,655 million. Net
revenues improved 18.1% year over year to 1,440.1 million. Net
revenues from same hospital (continuing operations) increased
4.5% to $1,274.1 million.
On same hospital basis, occupancy declined to 38.9% in the
third quarter from 41.1% in the prior year quarter. Same hospital
admissions and adjusted admissions also dipped 6.4% and 2.2%,
respectively, while surgeries and emergency room visits increased
0.8% and 4.2%, respectively.
For 2012, Health Management narrowed its forecast for earnings
in the band of 80 cents and 85 cents compared with the prior
guidance of 80 cents to 90 cents per share. The forecast revision
is associated with higher fixed expenditure related to two new
The forecast excludes about $103 million to $107 million (or
26 cents to 27 cents per share) of effect 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
$100 million (or 23 cents to 25 cents per share).
Health Management is engaged in the 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 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 urgent concern.
We are currently Neutral on the stock. The stock currently
retains a Zacks #4 Rank, which translates into a short-term
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