Hospitals: Health Gains from Obamacare

08/25/2014 8:00 am EST

Focus: STOCKS

Since open enrollment for President Obama's national healthcare plan began last October, hospital stocks have gone through the roof, observes Chris Preston in Daily Profit.

Shares of the five largest publicly traded US hospital companies are up by an average of more than 33% in the 10-plus months open enrollment began. That's more than double the 15% gain in the S&P 500 (SPX) during that time.

The reason behind the boost in hospital stocks is simple: Obamacare—kinks and all—has nonetheless prompted more Americans to sign up for healthcare coverage.

With a flood of new people now on healthcare coverage, profits at hospitals across the country have exploded. The five largest for-profit hospital companies are reaping the lion's share of those increased profits—and consequently seeing a nice boost in their share prices.

Here are the five hospital stocks benefitting most from Obamacare:

HCA Holdings (HCA)

The largest publicly traded hospital company reported a 9.2% increase in second-quarter revenue and a 14.2% increase in second-quarter earnings. HCA expects even larger profits in the next two quarters and the company is on track for its most profitable year since 2011.

Community Health Systems (CYH)

After four straight quarters of declines in earnings per share, Community Health Systems—the second-largest hospital chain in the country—reported a 40% increase in EPS last quarter. Revenues climbed 50%.

Until reporting those numbers, Community Health Systems had been lagging behind most of its competitors on the heels of a disappointing 12 months. Since mid-May, however, the stock is up more than 35%.

Tenet Healthcare (THC)

The third-largest hospital company in America hasn't turned a profit in two years. That could soon change. Tenet posted its highest sales ever last quarter, surpassing the $4 billion revenue mark for the first time ever.

The most telling number about how Obamacare has impacted Tenet's sales is this: In the three quarters before Healthcare.gov went live, Tenet averaged $2.4 billion in revenue. In the three quarters since? $3.9 billion.

LifePoint Hospitals (LPNT)

No hospital stock has thrived more in the Obamacare era. LifePoint shares have been on a tear of late, rising to all-time highs after two straight quarters of record revenue. LifePoint's earnings per share jumped more than 45% in the second quarter, putting the company on track for its most profitable year yet.

Universal Health Services (UHS)

Universal Health is more of a niche healthcare company, operating acute-care hospitals and behavioral-health centers in 37 states.

Though the company's EPS and revenues haven't accelerated the way some of its hospital peers have in the last ten months, the stock's exceptional performance during that time could be a case of the Obamacare tide lifting all boats.

Will hospital stocks continue to rise as more people sign up for Obamacare? It might take even greater earnings growth. At 17.5 times forward earnings, the five stocks mentioned above are pricier than the already frothy S&P 500 SPX, which has a forward P/E of 16.1.

Considering how quickly hospitals' earnings have accelerated in the nine months since Obamacare debuted, however, it's not unreasonable to think that there's plenty of room left in this hospital-stock rally.

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