Citing a decline in COVID admissions and normalization of elective procedures, Deutsche Bank warns that healthcare providers are entering into an “air pocket” that could lead to anxiety among investors.
In a note issued this week, the analysts led by Pito Chickering slashed their 1Q and 2Q revenue estimates for hospitals to reflect the lower COVID admissions in March and a drop in COVID revenue from the add-on payments.
The remarks come at a time the US is seeing a record low of COVID-related hospitalizations. Citing the Department of Health and Human Services, NBC News reported this week that the seven-day average of hospitalizations reached 16,760 on March 31, the lowest level since the US started tracking data at the start of the pandemic.
In Texas, where some of the leading for-profit hospital operators have a major presence, the COVID-related admissions for this week have approached the lowest level since data collection started, Deutsche Bank team argued, as they opined that its impact would also drive down the Q2 starting point.
However, due to the strong rebound in elective procedures and favorable commercial payor mix, the turbulence “will be smaller than originally feared,” they added, citing higher confidence in 2H 2022 and 2023 estimates, as a result.
Weighing in on several leading hospital operators, Chickering and the team predict that the sharp declines in COVID admissions could prompt HCA Healthcare (NYSE: HCA) to lower the upper end of its guidance.
Despite a worse than expected COVID decline, the firm reiterated the Buy rating and 2H 2022 EBITDA forecast for HCA (HCA) due to the strength in its core business amid a rebound in elective procedures.
Earlier this year, HCA (HCA), which operates primarily in Florida and Texas, projected $ 60.0 – $ 62.0 billion in revenue and $ 12.55 – $ 13.05 billion in adj. EBITDA for 2022.
On Tenet Healthcare (NYSE: THC), the analysts noted that, with COVID volumes at the lowest level, the Texas-based operator’s “hospitals could face a slightly more challenging revenue ramp for 2Q: 22,”
Yet, Tenet (THC) stands “unique” to HCA (HCA), the team added, arguing that the strong elective volumes at its subsidiary, United Surgical Partners International, should offset some uncertainty in its hospital business.
However, Deutsche Bank has trimmed the Q1 revenue estimates for Tenet’s (THC) hospital and revenue cycle management unit, Conifer Health Solutions, to reflect the impact on hospital growth amid lower COVID. Meanwhile, the estimates for USPI revenue were kept unchanged, pending the MedTech data for March due in a few weeks.
For Universal Health Services (NYSE: UHS), Deutsche Bank has lowered the hospital revenue estimates for 1Q and 2Q due to the recent decline in COVID cases. However, the estimates for its behavioral health segment were left unchanged.
Over the past 12 months, Universal Health Services (UHS) has well underperformed Tenet (THC) and HCA (HCA), as shown in this graph. See a side-by-side comparison of the performance and valuation metrics of the three rivals.