By Caitlin McCabe
Coronavirus hospitalizations have soared to all-time-highs,
threatening to strain health-care facilities across the U.S. again.
But this time, investors are less concerned.
Shares of several publicly traded hospital systems finished
November with their best performances in months, with national
hospital operators including Tenet Healthcare Corp. and HCA
Healthcare Inc. both jumping at least 21%. That is far better than
the S&P 500's 11% monthly gain and the 7.8% rise for the
index's health-care sector.
November sent the U.S. stock market on yet another wild ride,
driven by a string of positive Covid-19 vaccine results and a
quicker-than-expected resolution of the presidential election. Both
events helped push major U.S. stock indexes to new records as
traders scrambled to scoop up investments that have been
beaten-down this year. In addition to hospital stocks, shares of
retailers, restaurants, energy stocks and cruise liners also
jumped. Elsewhere across financial markets, crude oil, junk bonds
and metals such as copper and platinum rallied.
On its face, the recent outperformance of hospital stocks could
be perceived as one of the beneficiaries of the latest round of
bargain-hunting by investors -- after all, hospital chains such as
Tenet and Universal Health Services Inc. are both still trading 11%
or more below their respective 2020 highs after plunging during the
market rout.
Yet some investors and analysts say they also believe that the
recent rally has legs that could extend beyond November, even as
rising Covid-19 cases threaten to overrun hospitals again.
"We're bullish," said A.J. Rice, a health-care services analyst
at Credit Suisse, which has an "outperform" rating on Tenet,
Universal Health and HCA. "Absent a national lockdown again, we
think these companies can deliver on expectations and even exceed
them. And that should be sufficient to at least relatively
outperform the market overall."
Driving the optimism around hospital and health-care facilities,
analysts and investors say, is increased clarity about the months
ahead. Although two key Senate seats in Georgia won't be decided
until the January runoff election, many traders are anticipating
that the government will remain divided -- an outcome that reduces
the chances of a major health-care overhaul.
And statements from some of the Supreme Court's conservative
justices suggest the Affordable Care Act may survive its latest
test, a case argued last month by Republican-leaning states seeking
to challenge it.
The survival of the Affordable Care Act -- combined with a
gridlocked government -- would make it unlikely that health-care
policy will substantially change. That in turn, analysts said, will
be advantageous for hospitals, which have benefited from greater
volumes of insured patients.
"The [election] outcome probably is as good as we could have
hoped," said Whit Mayo, managing director of equity research at
UBS. "The [chance] of seeing more coverage is probably greater than
less coverage. And that's almost always a good thing for everyone
in health-care services."
One of the biggest challenges for hospital systems in the months
ahead will be the sharp climb in Covid-19 cases, which
public-health officials expect will worsen in the coming weeks as
more Americans test positive after traveling for Thanksgiving. The
U.S. reported more than 135,000 new coronavirus infections Sunday,
according to the Covid Tracking Project, and hospitalizations
surged to more than 93,000 -- a new record.
The jump in cases threatens to overtax hospital systems again.
But this time, investors and analysts expect hospital systems to
better weather the Covid-19 influx, thanks to a deeper
understanding of how to treat the virus and how to manage hospital
capacity. And unlike this spring, when states across the country
imposed restrictions on elective procedures, analysts anticipate
that local governments will instead leave those decisions to
hospital systems.
Already, many hospitals seem more willing to push ahead with the
profitable procedures that hospitals routinely conduct, especially
after many systems have enjoyed a faster-than-expected rebound in
hospital visits for non-coronavirus patients. That -- along with
cutting expenses, including via furloughs and reducing salaries at
some companies -- has helped turn around hospitals' financial
landscape.
Federal assistance earlier this year, including $175 billion in
direct aid approved by Congress for health-care providers across
the U.S., has also delivered relief.
"I do think investors are becoming comfortable with the fact
that hospitals can operate in a Covid environment and that
everything doesn't have to go into a complete shutdown," said Frank
Morgan, a research analyst at RBC Capital Markets.
Still, even with vaccine optimism, some analysts note that the
Covid-19 landscape could shift sharply if outbreaks significantly
worsen in the coming weeks. Some nonprofit hospitals have begun
putting elective surgeries on pause, and health-care workers are
anxious about what could be a sustained influx of patients after
already enduring an unrelenting year.
Even so, investor sentiment on hospital companies and the
overall health-care sector remains positive. In its latest survey
released in November, Bank of America said that health care remains
the most overweight sector among fund managers.
Recent options activity, meanwhile, has indicated that investors
became increasingly bullish on HCA and Universal Health in
November, compared with the month before, said Michael Khouw, chief
investment officer of Optimize Advisors. Activity in the options
market implies that, on average, traders expect a nearly 7%
increase in share price for HCA by mid-March and an almost 12%
increase for Universal Health by mid-April, according to his data
analysis.
Write to Caitlin McCabe at caitlin.mccabe@wsj.com
(END) Dow Jones Newswires
December 01, 2020 05:44 ET (10:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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