Lazard Capital Markets started coverage of acute care hospitals with a cautious stance based on its slower growth outlook for the sector in 2010, and rated Community Health Systems Inc (CYH) a buy, citing the company's internal growth opportunities and limited-risk balance sheet.

Analysts led by Tom Gallucci said investor sentiment has been positive towards the sector in 2009, helped by the waning credit crisis, reasonably solid earnings trends and hopes that healthcare reforms will reduce the number of uninsured.

However, the analysts viewed the underlying fundamentals of the business as modest relative to the broader healthcare services universe, and said the key areas of uncertainty include the ongoing uncompensated care issues and the future of government reimbursement.

Starting coverage on the Community Health Systems stock with a $42 price target, Lazard said the largest U.S.-listed hospital company has acquired properties offering internal growth opportunities and has a limited-risk balance sheet with no major debt maturities until 2014.

The brokerage initiated other hospital operators Tenet Healthcare Corp (THC), Health Management Associates Inc (HMA), LifePoint Hospitals Inc (LPNT), and Universal Health Services Inc (UHS) with hold ratings, saying the group is fairly valued at this point.

...investors must be selective in an effort to drive relative outperformance, the analysts added in a note to clients. (Reporting by Shailesh Kuber in Bangalore; Editing by Pradeep Kurup)