Healthcare has been one of the hottest sectors over the past year. This can be seen by looking at various ETFs such as iShares Dow Jones US Healthcare (IYH). This particular ETF has appreciated by approximately 35% over the past 52 weeks which is significantly higher than the 27% appreciation that the S&P Depository Receipts (SPY) has given investors. Now the healthcare sector is built up of many smaller industries and this article will focus on 2 medical services companies which have produced strong quarterly results.
Companies Showing Strength
One such company with a strong quarterly earnings report is Lifepoint Hospitals (LPNT). Lifepoint Hospitals is a leading hospital company dedicated to providing quality healthcare services close to home. Lifepoint has nearly 60 hospital campuses in 20 states. The company tends to be the only provider in most of their communities. They also have more than 28,000 employees and 3,000 physician partners across the country.
Lifepoint has had a strong 3 months of trading, mostly due to their recent earnings report.
The company soared 4.6% after the earnings report and has been able to maintain that level since the report.
The company demonstrated after its last earnings report that it is in good shape for the future. Lifepoint filed its quarterly earnings statement on April 26, 2013. We can begin by looking at the company's balance sheet. The first thing that stands out is the company's excellent cash position. Over the past 3 months, Lifepoint was able to grow their cash available by 88.7% from $85.0 million to $160.4 million. At the same time, Lifepoint's long-term debt remained relatively constant. The one concern would be the amount of long-term debt that is coming due during this year. The company may need to engage in additional financing or a secondary to help pay that down, in addition to using their available cash. On the income statement, the company also made great progress. Compared to the same quarter in 2012, Lifepoint's revenue increased by 10.2% to $1.1 billion. Additionally, analysts are expecting the growth to continue in 2013 and 2014. For 2013 and 2014, analysts are expecting growth rates of 8.4% and 5.8%, respectively.
Now the company is certainly not without its fair share of risks. The first concern, as already pointed out, is the amount of debt coming due this year. However, the company's market cap sits comfortably at over $2 billion, so if necessary, the company could likely engage in additional financing or issue a secondary to help pay it down. The company also has a very strong cash position to help with that. A second risk is ObamaCare. ObamaCare will likely punish hospitals with high readmission rates. For hospitals that fall in this category, Medicare will reduce reimbursements by as much as 1 percent. The penalties increase from that point on. There is no reason to think that Lifepoint falls in that category but since this new rule will likely punish 67% of hospitals, it certainly could.
Another hospital company which produced an excellent quarterly earnings report is Kindred Healthcare (KND). Kindred Healthcare operates long-term acute care hospitals, impatient rehabilitation hospitals, nursing and rehabilitation centers, assisted living facilities, and a home health and hospice business across the United States.
Much like Lifepoint, the company has had a strong recent trading trend, thanks in large part to their recent quarterly earnings report.
The company filed their quarterly statement on May 1, 2013. Since then, the share price has soared by more than 17%. Although the 2 year chart is certainly ugly, the company appears to be making a comeback and is just shy of its 52 week high of $12.76.
Financially speaking, Kindred performed extraordinarily well. The company's cash position did decrease by roughly $7.3 million to $42.7 million. However, the company was able to keep its long-term debt relatively stable at $1.67 billion, an increase of just $22.5 million. On the income statement, the company grew its revenue by 1.1% to $1.55 billion. A few key takeaways from the earnings report are as follows:
- Solid cost management drove core operating income growth of 6% and EPS growth of 14%
- Core operating expenses increased only 0.3% compared to the same quarter last year
- Rehab revenue growth and higher therapist productivity drove 30% growth in operating income
- Home health and hospice division saw a revenue increase of 82% and an operating income increase of 55%
- GAAP operating cash flows grew to $25 million compared to last year's deficit of $3 million.
Kindred has done a great job of improving its financials to help reward shareholders and take the company to the next level. That being said, the company faces uncertainty with ObamaCare. Much like with Lifepoint, it is unclear if the stricter rules will have an impact.