While the surprise election of Donald Trump rocked a number of market sectors, few were hit as hard as the hospital/health facility market. That is largely because a Republican clean sweep this year arguably puts the Affordable Care Act—also known as Obamacare— on the chopping block, something that could undo years of gains for the hospital/health facility market in particular.
Why this area? Well, these companies have benefited tremendously from the ACA, as it has put millions of new insurance-covered customers in their systems, boosting profits in the process. And with this likely taken away in the near future, it could be a very rough period for this space. And while most investors have been focused on HCA Holdings (HCA - Free Report) as the poster child for this new world, those looking for a more promising short candidate might want to go beyond the traditional hospital space and investigate Acadia Healthcare (ACHC - Free Report) instead.
ACHC in Focus
Acadia, an operator of behavioral health services and facilities across the nation (and now with a UK presence as well), saw its share price peak long before the prospect of Trump winning the election was on anyone’s mind, in August of 2015. Since then, shares have been on a sharp downward trajectory, with prices falling by more than 25% in the past three months alone.
And while shares have actually done reasonably well since the election, the outlook for the sector at-large remains poor, while there are still plenty of concerns over ACHC’s health in the near term. As evidence for this, consider some of the recent earnings estimates for ACHC stock.
Analyst opinion of the stock’s earnings potential in recent weeks has gone almost straight down, and now the company is expected to see earnings contract year-over-year for the current quarter. The full year and next figures are arguably even worse, as we have seen seven analyst estimates go lower in the past thirty days for the full year, and then nine estimates go lower for the next year time frame too.
The impact of these analyst revisions has pushed the consensus estimate down by about 20% in the past few months for the current quarter, and then down 8.7% for the full year and down 13.9% for the following full year. Add in a so-so history in recent earnings reports and it becomes a rough outlook for the company in the near term.
But that isn’t all, as the company is actually in an industry that is in the bottom 10% overall, without a single company that is ranked as a ‘buy’ or ‘strong buy’ right now. No wonder shares of ACHC have a Zacks Rank #5 (Strong Sell) and why we are looking for more underperformance from the company in the weeks ahead.
Clearly, ACHC is probably not a good choice for investors right now, and investors need to look to other companies. The hospital space is completely devoid of ‘buy’ rank stocks though, so it might be a good idea to look elsewhere for gains.
One promising segment right now is the biotech world, as the political risks are far lower, while growth potential is far higher as well. The segment actually has more than 50 buy ranked stocks in its group, so check out the list of top ranked biotech stocks for a closer look at this market segment, and definitely consider these over the hospital/health facility market for now.
More Stocks to Sell. Now.
Beyond our Bear Stock of the Day, today's list of 220 Zacks Rank #5 Strong Sells demand even more urgent attention. If any are lurking in your portfolio or Watch List, you should consider removing them immediately. Many appear to be sound investments but, since 1988, such stocks have actually performed more than 11X worse than the S&P 500.
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