Why Vanguard Health Systems Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of hospital and outpatient center operator Vanguard Health Systems (NYSE: VHS  ) shot up as much as 10% today after it reported fourth-quarter results.

So what: For Vanguard and its shareholders, last night's report was a big step in the right direction. Net income for the quarter was $0.24, which reversed a year-ago loss and doubled the estimates found on Yahoo! Finance (although revenue fell short of expectations). More importantly, net patient service revenue rose 5.9% while discharges decreased 2.1%. Simply put, Vanguard is getting more money out of its patients and they're staying longer, which is good for the company's bottom line. Vanguard Health also supplied its 2013 fiscal forecast calling for EPS to range between $0.74 and $0.93. The midpoint of that projection is well ahead of the $0.78 Wall Street had been looking for.

Now what: All told, this was a pretty solid report all the way around. However, the real motivation to be excited about hospital stocks isn't entirely their earnings results, but the prospect of becoming protected by individual insurance mandates as required under the Affordable Care Act. This bill, when enacted in 2014, should help lower bad debt accounts for all hospital operators and allow a company like Vanguard to keep more of what it earns. At roughly 11 to 14 times forward earnings (based on its own forecast), Vanguard could be a company worth keeping your eye on.

Craving more input? Start by adding Vanguard Health Systems to your free and personalized watchlist so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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