Hospital shares snap back, some analysts see value despite uncertainty

By Sinead Carew

(Reuters) - Shares in hospital companies partly recovered on Friday after health insurance firms reiterated their financial guidance following a UnitedHealth Group (NYSE: UNH) warning about insurance exchanges that punished the sector on Thursday.

Analysts say short-term concerns may be overblown though some investors still worry about the future of exchanges where individuals can buy health insurance after UnitedHealth cuts its guidance and said it may exit the individual exchanges.

Hospitals, which have to treat emergency patients whether or not they have health insurance, have benefited from the exchanges which increased the number of Americans covered by health insurance. More coverage helped hospitals reduce bad debts from patients who cannot pay.

Shares in Community Health Systems Inc (NYSE: CYH) rose 4 percent after an 8 percent decline the day before. Universal Health Services (NYSE: UHS), Tenet Healthcare Corp (NYSE: THC) and HCA Holdings (NYSE: HCA) all rose more than 2 percent on Friday.

The S&P 500 index of healthcare facilities <.SPCOMHCLT> was up 2.9 percent Friday after falling 5.7 percent Thursday.

Hospitals were boosted Friday when UnitedHealth rivals Aetna Inc (NYSE: AET) and Anthem (NYSE: ANTM) reiterated their 2015 earnings forecasts and said their business from the exchanges performed in line with projections through October.

Jefferies analyst Brian Tanquilut said "the potential impact from the exchange risk seems to be more than priced in to the (hospital) stocks at current levels especially since they're doing big buybacks near term."

Tanquilut estimated that patients covered by the exchanges represented only 5 percent of his expectations for HCA's 2015 earnings before interest, tax, depreciation and amortization.

He said HCA should fetch a valuation of 8 compared to its current valuation of 6.8, based on the ratio of enterprise value to EBITDA in the longer term. But he noted that hospital stocks have short-term volatility risks along with the entire healthcare sector ahead of the 2016 Presidential election.

SterneAgee analyst Brian Wright said there are issues around the exchanges but he sees "recent volatility in hospital shares as providing compelling value for investors."

Still, some investors worry more insurers could eventually follow UnitedHealth and pull back from exchanges because they can't make a profit due to pricing trends in the business.

Fewer insurers would mean an increase in insurance prices, leading healthy individuals to opt out of having insurance.

"If nothing is done the cost of insurance will increase dramatically unless there's a rate structure that works for the companies, the providers and the enrollees," John Schroer Head of US Healthcare Research and Portfolio Manager Allianz Global Investors in New York.

(Reporting By Sinead Carew; Editing by Andrew Hay)

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