Market Overview

Top Performing Hospital Stocks with the Most Upside Potential (CYH, HCA, VHS)

It is not unusual for stocks on a tear to overrun their mean price targets, which is a signal of how far analysts on average expect the share price to climb. Some of the top performing hospital stocks over the past six months, such as Tenet Healthcare (NYSE: THC) and Health Management Associates (NYSE: HMA), have done just that. Others are at or near their mean price targets.

But analysts believe that Community Health Systems (NYSE: CYH), HCA Holdings (NYSE: HCA) and Vanguard Health Systems (NYSE: VHS) still have at least a little room to run, despite rising more than 50 percent in the past six months and trading near their 52-week highs.

Community Health Systems

This operator of about 131 hospitals in 29 states has a market capitalization of about $3.8 billion. The price-to-earnings (P/E) ratio is less than the industry average. The Franklin, Tenn.-based company also has a long-term earnings per share (EPS) growth forecast of more than 12 percent. But the return on equity is less than 10 percent.

The number of shares sold short, as of the February 28 settlement date, represents more than three percent of the total float, after falling about 17 percent from the previous period. That is the lowest level of short interest in Community Health Systems in at least a year.

Half of the 24 analysts who follow the stock and were polled by Thomson/First Call recommend buying the shares, while none of them recommend selling. The analysts feel the stock has only a little head room as their price target represents less than three percent potential upside over the current share price. But that target would be a new multiyear high.

The share price is up more than 37 percent year to date but has hit resistance at $43 in the past three weeks. The stock has outperformed the other two hospital stocks featured here, as well as the broader markets, over the past six months.

HCA Holdings

This health care services provider is headquartered in Nashville, and it sports a market cap of about $16.5 billion. Its long-term EPS growth forecast is more than 11 percent, and the P/E ratio is less than the industry average. It operates more than 160 hospitals in 20 states and the U.K., and its operating margin is greater than the industry average.

The short interest in HCA Holdings was about two percent of the float at the end of February, after dropping more than seven percent from the previous period, when the number of shares sold short was the highest year-to-date.

All but two of the 25 analysts surveyed recommend buying shares, which has been the consensus recommendation for the past three months. Their mean price target, or where the analysts expect the share price to go, is more than 14 percent higher than the current share price. That target would be a multiyear high as well.

The share price is up about 19 percent year-to-date, though most of that gain came in January. Over the past six months, the stock has outperformed competitors such as Lifepoint Hospitals (NASDAQ: LPNT) and Select Medical Holdings (NYSE: SEM).

Vanguard Health Systems

This $1 billion market cap company operates about 28 acute care hospitals, as well as some other health care facilities. The return on equity is more than 28 percent, and the long-term EPS growth forecast is near 13 percent. The P/E ratio is lower than the industry average. Like the other two stocks featured here, Vanguard Health Systems offers no dividend.

The short interest in Vanguard Health Systems has been dwindling since the end of November, and the number of shares sold short now represents less than one percent of the total float. That is the lowest level of short interest in at least a year.

Thirteen of the 16 analysts surveyed recommend buying shares, and none recommends selling. Their consensus price target represents more than seven percent potential upside, relative to the current share price. The consensus target is a level shares have not seen since August of 2011.

The share price is almost 23 percent higher than at the beginning of the year, but shares have been looking for direction since hitting a 52-week high in mid-February. This stock has outperformed HCA Holdings and the broader markets over the past six months.

Posted-In: community health systems HCA Holdings health management associates lifepoint hospitalsLong Ideas Short Ideas Analyst Ratings Trading Ideas Best of Benzinga

 

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