Wedbush Initiates On A Ton Of Healthcare Stocks

In a few reports published Tuesday, Wedbush analyst Sarah James initiated coverage on four healthcare stocks, all of which are moving on Wednesday.

Let’s take a look at the ratings and comments.

Community Health Systems

The expert gave Community Health Systems CYH an Outperform rating and a $65 price target, for she views the company as “undervalued and not reflecting the firm’s growth potential and peer high margin expansion potential.”

The research firm sees opportunity for the company’s margins to expand 1 percent through 2016 (compared to its peers’ 0.1 percent) as it levers its recent Health Management Associates Inc HMA acquisition.

HCA Holdings

HCA Holdings Inc HCA was also rated as Outperform, and received a $93 price target, which implies an upside potential of approximately 14.5 percent. The analysts at Wedbush base their rating on the belief that “investors are not fully valuing the company’s potential for accretive capital deployment and Parallon’s growth.”

According to the firm’s calculations, HCA could drive roughly 9 percent earnings upside via share repurchases by the end of 2017 -- the company has a three-year capital spending plan of $7.7 billion in place.

LifePoint Health

LifePoint Health Inc LPNT, instead, got a Neutral rating and an $80 price target, implying an upside potential of 8.6 percent. Ms. James says her team and her see potential for margin expansion and overall growth, “but not to the degree of some peers.”

Given the stock’s 2016E EBITDA multiple (4.5 times consensus 2016 EBITDA), in line with its peers’ average of 4.7x, the specialists think the valuation is fair. Moreover, they estimate net income could increase 24 percent by 2016, well below their estimates for Community Health Systems and Tenet Healthcare Corp THC -- 66 percent and 93 percent, respectively.

In addition, LifePoint looks “well positioned for the upcoming SCOTUS ruling given their 20% exposure to state run exchanges.” The firm estimates 3.4 percent of 2016 EBITDA is at risk, but this figure could actually be as low as 1.2 percent, if the surveys on consumer responses to losing subsidies conducted by Wedbush are correct.

HealthSouth Corp

Finally, Ms. James looked into HealthSouth Corp HLS, which she also rated as Neutral, fixing a $46 price target which implies little upside potential. The analysts believe the stock is expensive in relation to peers, especially when one compares the companies’ “potential for margin improvement and exposure to inpatient diversion risk. “