After A Q4 Miss, LifePoint Health Downgraded By Leerink On Free Cash Flow Concerns

Health care services provider LifePoint Health Inc LPNT was hit with a downgrade by Leerink Swan while still recovering from a Friday earnings miss and subsequent stock plunge.

The Rating

Analyst Ana Gupte downgraded LifePoint from Outperform to Market Perform and lowered the price target from $58 to $52.

The Thesis

Despite headwinds in pricing and Medicare exposure, LifePoint posted “encouraging improvement” in patient volume trends over the last quarter as a severe flu season peaked and the 2016 class of acquired hospitals performed well in emergency department and inpatient surgery traffic, Gupte said in a Monday note. (See the analyst's track record here.)

LifePoint is expected to secure $30 million and a 17-percent earnings-per-share boost from tax reform, with additional tailwinds coming from the federal repeal of a disproportionate share hospital payment cut and the funding of rural Medicare extenders.

But even with those benefits, Gupte anticipates upcoming expansion challenges. Poor pricing and volume prospects in rural environments; pressure in outpatient surgeries and emergency departments; and Medicare and Medicaid exposure drive weak free cash flow, she said. 

“While the strategic review points to a re-evaluation of the rural market trends with possible shifts in strategy and emphasis on alternate access points such as urgent care and freestanding [emergency departments], unavailability of FCF may make it challenging to amplify those investments in the near term,” Gupte said. 

The analyst said she expects a delay in M&A activity until 2019. 

Price Action

LifePoint shares were trading down 0.76 percent at $45.95 after the open Monday. 

Related Links:

Analyst Breaks Down The Bear Thesis For Lifepoint, Community Health

14 Health Care, Managed Care Stocks To Put On Your Radar