Sector Snap: Hospital stocks could slow on weak economy

Oppenheimer & Co. analyst Michael Wiederhorn said admission growth is slowing after a strong first quarter. He added that the economic downturn is causing some patients to hold off on elective surgeries, which are among the most profitable procedures for hospitals.

Likewise, Citi Investment Research analyst Gary Taylor added slower job growth will lead to less hospital admissions growth this year. He advised selling hospital stocks prior to upcoming second quarter earnings.

In a monthly survey of 121 hospitals Citi conducted, only 25 percent of hospitals reported higher commercial admissions year-to-year, the lowest level since 2005.

Wiederhorn said that presentations made at this week's Goldman Sachs Global Healthcare Conference by hospital operators indicated that several fundamental problems in the industry, such as bad debt expenses, continues.

With regard to individual companies, he pointed out that Health Management Associates Inc. executives said the industry is not as recession-proof as some might believe. Meanwhile, the company said it has taken an aggressive stance in renegotiating several contracts with managed care companies.

Wiederhorn has a "Perform" rating on Health Management shares.

Wiederhorn noted that Community Health Systems Inc., which he has an "Outperform" rating on, said it is maintaining its same-hospital growth projection for the year. Also, the company said it has implemented rate increases on its managed care contracts.

Separately, Leerink Swann & Co. initiated coverage on several hospital stocks. Lifepoint Hospitals Inc. was given an "Outperform" rating, while Health Management and Community Health were both rated "Market Perform."

Hospital stocks were mixed in afternoon trading. Health Management shares dropped 11 cents to $6.80 and Community Health shed 56 cents to $34.44. Lifepoint Hospitals bucked the trend, rising 58 cents, or 2 percent, to $30.35.