Staffing Woes Set To Weigh On Hospital Operator's Profits

Hospital operators in the U.S. are likely to see a dip in fourth-quarter profits as an ongoing staffing crunch limits their ability to take advantage of an early onset of the flu season and boost admissions.

Nursing shortages at hospitals have persisted for years and have worsened during the pandemic, driving up costs for hospitals as they seek to retain staff.

Although shortages and associated costs have improved over the course of 2022, analysts say it is still not enough to lift growth in elective procedures and offset the impact of high costs.

"We still continue to see staffing limitations as a gating factor for overall procedure growth in the U.S. It is not worsening, but there are no clear signs yet that it is getting much better either," said Scott Fidel, analyst at Stephen.

Even with slightly higher admissions because of the flu, analysts say any boost from lower-margin respiratory hospitalizations is likely to be minimal as hospitals do not have the capacity to resume high-margin elective procedures.

"Hospitals may have been a little bit too rosy in providing expectations and guidance for how much they think volume will grow," CFRA analyst Daniel Rich said.

THE CONTEXT

Admissions - a key metric for operators HCA Healthcare, Universal Health Services and Tenet Healthcare - are typically higher during high-intensity flu seasons such as in 2018-2019, while profits at health insurers are dented due to increased medical costs.

While the flu season in the United States came early, a surge in cases of respiratory syncytial virus-related infections and COVID were expected. But no such "tripledemic" materialized, health insurer UnitedHealth Group said earlier this month.

But "if (the) staff is sick at home, capacity constraints may have been exacerbated," said Julie Utterback, analyst at Morningstar.

HCA reports earnings on Friday, while Tenet reports its results on Feb. 9.

FUNDAMENTALS

** Eight analysts, on average, forecast HCA's fourth-quarter net profit to be $1.36 billion, falling 24% from the previous year adjusted profit of $1.81 billion

** Tenet Healthcare's fourth-quarter net profit is estimated at $107.8 million, according to average of four brokerages, which is 56.9% lower to the previous year profit of $250 million

WALL STREET SENTIMENT

** Of the 24 analysts covering HCA, 19 rate it "buy" or higher, five rate it "hold"

** The median price target for HCA is $268, a 6.06% upside to its last closing price, while Tenet's median price target of $63 is 25.37% higher than its last closing price.

** 15 of 19 analysts covering Tenet's stock rate it "buy" or higher, four rate it "hold"