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The COVID-19 pandemic severely impacted hospital revenues in the United States. The first wave of the pandemic hit Americans hard and people got infected on a massive scale. The scenario compelled hospitals to suspend non-emergency procedures and treat numerous cases of coronavirus infections. Pandemic-induced lockdowns compunded the miseries further as supply chains got disrupted, which led to hospitals incurring huge amount of costs for obtaining personal protective equipment (PPE) kits and specific medical supplies required for COVID-19 treatment. This, in turn, put pressure on margins of most healthcare systems.
However, following the dismal period, hospitals seem to be on a gradual path of recovery. This is evident from growing revenues, admissions, widespread vaccination programs, constant acquisitions and mergers, and constant technological advancements. Besides, funds offered through the Coronavirus Aid, Relief, and Economic Security Act or the CARES Act have been contributing to the recovery. Although woes related to delay in vaccine supply and distribution, and new variants of the virus linger, the aforementioned factors are anticipated to aid the hospitals’ performance in the second half of 2021.
Growth in Patient Volumes
After bearing the brunt of the pandemic, revenues of several hospitals are bouncing back. The top-line recovery can primarily be attributed to surge in admissions and outpatient visits. With widespread vaccination programs, individuals, who were previously apprehensive of primary care and other specialty care visits in fears of contracting COVID-19, have become more optimistic regarding hospital visits. As stated in the Kaufman Hall report, the hospitals and health systems are expected to witness continued margin improvement, volume increases and revenue growth in the days ahead compared to significant losses incurred in the initial months of COVID-19 pandemic.
Pursuing M&A Strategy
Hospitals have been intensifying focus on mergers and acquisitions (M&A), which have added facilities and beds to their network, boosted business scale and expanded geographical presence. The primary aim behind these deals is to enhance the quality of care and bring about diversification benefits, which is crucial to strengthening one’s market position.
The M&A deals suffered a blow due to the pandemic-induced volatilities and several such deals were put on hold. Nevertheless, extensive vaccinations and gradual recovery of the global economy will increase companies’ spending capabilities. This, in turn, will pave the way for more deals particularly in healthcare-related businesses, as stated in the Healthcare Innovation website. Statement of M&A bankers at Morgan Stanley, “All the elements are there for an active M&A market in 2021”, further reinforces a busy M&A market this year.
Continuous Technology Upgradations
Most hospitals undertook significant investments in developing virtual solutions aimed at catering to patient needs without the need of a hospital visit. The importance of telehealth services gained prominence amid the dismal period as it seemed to be the only feasible option to seek minimum help from home while minimizing infection risks. Per Fitch Ratings, healthcare providers are expected to benefit from growing adoption of telehealth services. These services have generated a steady revenue stream for hospitals, which have been grappling with revenue losses due to deferred elective or suspended non-COVID-19 procedures.
Will the Momentum Stay?
We believe that the future prospects of the hospital industry are bright despite several challenges stemming from the COVID-19 pandemic.
The overall bullish scenario makes us optimistic regarding consistent growth in the hospital industry, which should boost prospects of companies with sound business fundamentals. The Zacks Hospital Industry, which is housed within the broader Zacks Medical sector, currently carries a Zacks Industry Rank #23, which places it in the top 9% of more than 250 Zacks industries.
The Zacks Hospital industry has advanced 78.7% in the past year, against the Medical sector’s decline of 1.6%. The S&P Index rallied 30.1% in the same time frame.
Universal Health Services, Inc.’s (UHS - Free Report) top line has been riding on the back of Acute Care and Behavioral Health platforms. In the first half of 2021, adjusted admissions increased 4.7% and 3.8%, at Acute Care and Behavioral Health segments, respectively, from the prior-year comparable period, which contributed to revenue growth. Accretive acquisitions and robust capital position instill confidence in the stock. The company currently has a Zacks Rank #2 and a Value Score of A. Over the past 30 days, the stock has seen its current-year earnings estimate being revised upward by 10.2%. In a year’s time, the stock has gained 38.6% compared with its industry’s rally of 78.7%.
Acadia Healthcare Company, Inc. (ACHC - Free Report) is riding on the back of its top-line growth driven by an increase of 6.9% in admissions across its U.S. business in the first half of 2021. The company has been undertaking constant buyouts and joint ventures, in a bid to expand its product portfolio. The company currently has a Zacks Rank of 2 and a Value Score of B. The stock has witnessed its 2021 earnings estimate move north by 4.9% over the past 30 days. Shares of the company have surged 108.8% in a year.
HCA Healthcare, Inc.’s (HCA - Free Report) revenues have rebounded on the back of rise in admissions and outpatient surgeries. Total admissions in the first half of this year increased 5.8% year over year. A solid balance sheet and sound cash flows enable the company to engage in inorganic growth initiatives such as undertaking buyouts and collaborations. Its solid 2021 guidance is impressive as well. It has a Value Score of B and a Zacks Rank #2. Over the past 30 days, the stock has seen its current-year earnings estimate being revised upward by 1.7%. In a year, shares of HCA Healthcare have soared 87.5%.
Tenet Healthcare Corporation (THC - Free Report) is gaining on the back of acquisitions and strategic alliances aimed at boosting scale of business. Its cost-management program has successfully reduced the company’s operating expenses. The company currently has a Zacks Rank #3 and a Value Score of A. Over the past 30 days, the stock has seen its current-year earnings estimate being revised upward by 0.9%. In a year’s time, the stock has surged 164.1%.
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4 Hospital Stocks Likely to Perform Well in 2H21
The COVID-19 pandemic severely impacted hospital revenues in the United States. The first wave of the pandemic hit Americans hard and people got infected on a massive scale. The scenario compelled hospitals to suspend non-emergency procedures and treat numerous cases of coronavirus infections. Pandemic-induced lockdowns compunded the miseries further as supply chains got disrupted, which led to hospitals incurring huge amount of costs for obtaining personal protective equipment (PPE) kits and specific medical supplies required for COVID-19 treatment. This, in turn, put pressure on margins of most healthcare systems.
However, following the dismal period, hospitals seem to be on a gradual path of recovery. This is evident from growing revenues, admissions, widespread vaccination programs, constant acquisitions and mergers, and constant technological advancements. Besides, funds offered through the Coronavirus Aid, Relief, and Economic Security Act or the CARES Act have been contributing to the recovery. Although woes related to delay in vaccine supply and distribution, and new variants of the virus linger, the aforementioned factors are anticipated to aid the hospitals’ performance in the second half of 2021.
Growth in Patient Volumes
After bearing the brunt of the pandemic, revenues of several hospitals are bouncing back. The top-line recovery can primarily be attributed to surge in admissions and outpatient visits. With widespread vaccination programs, individuals, who were previously apprehensive of primary care and other specialty care visits in fears of contracting COVID-19, have become more optimistic regarding hospital visits. As stated in the Kaufman Hall report, the hospitals and health systems are expected to witness continued margin improvement, volume increases and revenue growth in the days ahead compared to significant losses incurred in the initial months of COVID-19 pandemic.
Pursuing M&A Strategy
Hospitals have been intensifying focus on mergers and acquisitions (M&A), which have added facilities and beds to their network, boosted business scale and expanded geographical presence. The primary aim behind these deals is to enhance the quality of care and bring about diversification benefits, which is crucial to strengthening one’s market position.
The M&A deals suffered a blow due to the pandemic-induced volatilities and several such deals were put on hold. Nevertheless, extensive vaccinations and gradual recovery of the global economy will increase companies’ spending capabilities. This, in turn, will pave the way for more deals particularly in healthcare-related businesses, as stated in the Healthcare Innovation website. Statement of M&A bankers at Morgan Stanley, “All the elements are there for an active M&A market in 2021”, further reinforces a busy M&A market this year.
Continuous Technology Upgradations
Most hospitals undertook significant investments in developing virtual solutions aimed at catering to patient needs without the need of a hospital visit. The importance of telehealth services gained prominence amid the dismal period as it seemed to be the only feasible option to seek minimum help from home while minimizing infection risks. Per Fitch Ratings, healthcare providers are expected to benefit from growing adoption of telehealth services. These services have generated a steady revenue stream for hospitals, which have been grappling with revenue losses due to deferred elective or suspended non-COVID-19 procedures.
Will the Momentum Stay?
We believe that the future prospects of the hospital industry are bright despite several challenges stemming from the COVID-19 pandemic.
The overall bullish scenario makes us optimistic regarding consistent growth in the hospital industry, which should boost prospects of companies with sound business fundamentals. The Zacks Hospital Industry, which is housed within the broader Zacks Medical sector, currently carries a Zacks Industry Rank #23, which places it in the top 9% of more than 250 Zacks industries.
The Zacks Hospital industry has advanced 78.7% in the past year, against the Medical sector’s decline of 1.6%. The S&P Index rallied 30.1% in the same time frame.
Image Source: Zacks Investment Research
Stocks that Warrant a Look
These four hospital stocks hold ample growth prospects to retain sound performance in the days ahead. Here are four stocks that have a Zacks Rank #2 (Buy) or 3 (Hold) presently and an attractive Value Score. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Universal Health Services, Inc.’s (UHS - Free Report) top line has been riding on the back of Acute Care and Behavioral Health platforms. In the first half of 2021, adjusted admissions increased 4.7% and 3.8%, at Acute Care and Behavioral Health segments, respectively, from the prior-year comparable period, which contributed to revenue growth. Accretive acquisitions and robust capital position instill confidence in the stock. The company currently has a Zacks Rank #2 and a Value Score of A. Over the past 30 days, the stock has seen its current-year earnings estimate being revised upward by 10.2%. In a year’s time, the stock has gained 38.6% compared with its industry’s rally of 78.7%.
Acadia Healthcare Company, Inc. (ACHC - Free Report) is riding on the back of its top-line growth driven by an increase of 6.9% in admissions across its U.S. business in the first half of 2021. The company has been undertaking constant buyouts and joint ventures, in a bid to expand its product portfolio. The company currently has a Zacks Rank of 2 and a Value Score of B. The stock has witnessed its 2021 earnings estimate move north by 4.9% over the past 30 days. Shares of the company have surged 108.8% in a year.
HCA Healthcare, Inc.’s (HCA - Free Report) revenues have rebounded on the back of rise in admissions and outpatient surgeries. Total admissions in the first half of this year increased 5.8% year over year. A solid balance sheet and sound cash flows enable the company to engage in inorganic growth initiatives such as undertaking buyouts and collaborations. Its solid 2021 guidance is impressive as well. It has a Value Score of B and a Zacks Rank #2. Over the past 30 days, the stock has seen its current-year earnings estimate being revised upward by 1.7%. In a year, shares of HCA Healthcare have soared 87.5%.
Tenet Healthcare Corporation (THC - Free Report) is gaining on the back of acquisitions and strategic alliances aimed at boosting scale of business. Its cost-management program has successfully reduced the company’s operating expenses. The company currently has a Zacks Rank #3 and a Value Score of A. Over the past 30 days, the stock has seen its current-year earnings estimate being revised upward by 0.9%. In a year’s time, the stock has surged 164.1%.