Citi says sell hospital stocks

In starting coverage, analyst pans CHS and LifePoint, but likes prospects for some other local healthcare players

Email | Print By Geert De Lombaerde

Flat admissions and rising bad-debt levels make hospital company stocks unattractive prospects, a Citi Investment Research analyst starting coverage of the sector said this morning.

Gary Taylor has issued ‘sell’ ratings on the industry, including on locally based Community Health Systems and LifePoint Hospitals.

Commenting on LifePoint, Taylor said the company “appears particularly exposed in newfound physician competition for outpatient diagnostic and surgical services.”

Shares of LifePoint (Ticker: LPNT) have rallied from $24 to about $30 since early February. Taylor’s target is $26.

Taylor’s negative take on CHS (Ticker: CYH) stems more from the strategic shift that came with its buyout last year of Triad, which brought CEO Wayne Smith and his team many urban facilities.

“The company is on pace to deliver their guidance for synergies from the Triad acquisition,” Taylor wrote. “But we can’t quite get over that the acquisition represented a dramatic strategic reversal.”

Like LifePoint, CHS shares have been on a solid run lately, rising from $30.45 in mid-March to about $38. Taylor’s sees them going back to $31.

Switching to specialty providers, Taylor’s outlook for shares of AmSurg is much more upbeat. He rates the surgery center operator’s shares a ‘buy’ on the basis of strengthening fundamentals and a solid track record.

“AMSG may not be a sprinter, but it has been a great endurance runner over time,” said Taylor, who has a $32 target on the stock.

AmSurg shares (Ticker: AMSG) were up 0.4 percent late this morning at $25.50 and are down 6 percent so far this year.

Similarly, Taylor expects Psychiatric Solutions shares to do well this year on the back of stronger organic growth and a customer mix that relies less on self-pay and Medicare patients.

Taylor has a target of $41 for the stock (Ticker: PSYS), which is down 0.6 percent today at $34.88. Year to date, the stock is up about 7 percent.