Looking Ahead at LifePoint Hospitals’ Fourth Quarter Earnings

Some key areas for investors to consider when acute care hospital operator LifePoint Hospitals releases its fourth quarter earnings on Friday.

Feb 11, 2014 at 6:30PM

LifePoint Hospitals (NASDAQ:LPNT) will be releasing its fourth quarter earnings report on Friday, Feb. 14. The hospital operator's shares currently trade at 16 times 2014 earnings, a bit pricier than its competitors Community Health Systems (NYSE:CYH) and HCA Holdings (NYSE:HCA), which both trade at 11 times future earnings. However, LifePoint has better growth prospects with a five-year PEG ratio of 2.08, and it is working toward positioning its hospitals to take advantage of the changing health care services sector. I'll discuss below three factors long-term investors should consider when the company discusses its fourth quarter earnings on Friday.

1. Strategic acquisitions and market share
LifePoint has been very busy acquiring smaller competitors with the goal of increasing its position in faster growing markets. Acquisitions, so far, have had a positive impact on revenues. During 2011 and 2012, the company completed four transactions with Duke LifePoint Healthcare, which generated about $500 million in revenue.

In 2013, it entered into joint ventures with Fauquier Health and Portage Health; Bell Hospital was also acquired last year. LifePoint is expecting to close another four transactions with Duke LifePoint Healthcare, LifePoint's medical collaboration with Duke University, during the first and second quarter of 2014. One of these transactions – the formation of a joint venture with North Carolina provider Wilson Medical Center – has a signed agreement that is currently under review

Investors should expect LifePoint's M&A activity to continue and to be financed with free cash flow and the issuance of new debt. In January, the company increased a recent offering of $500 million in senior notes to $700 million. In its third quarter conference call, LifePoint stated its acquisitions should generate about $110 million in revenue for the fourth quarter. These mergers have helped the company revenue-wise – LifePoint has year-over-year quarterly revenue growth of 10% and is closer to the industry's 13% growth rate than its peers. However, long-term investors are urged to watch how the company's cash flows and debt levels change over the next few quarters.

While LifePoint has been gobbling up small competitors, the same can be said for its rival Community Health Systems. For Community Health, its long-awaited acquisition of Health Management Associates, or HMA, and its 71 hospitals was completed on Jan. 27. Forecasts predict that the acquisition will generate about $250 million in synergies during the first two years after the transaction closes

2. Admissions growth and service expansion
As the economy improves at a slower than expected pace, fewer patients have sought medical care. This has led to lower inpatient admission volumes at many hospitals. The hospital sector as a whole is seeing a shift to more outpatient services. When fourth quarter results for fiscal 2013 are announced, it will be interesting to see how LifePoint's admission rates have changed. During fiscal 2012's fourth quarter, admissions dropped on a same hospital basis by 2.1%. The hospital's inpatient surgeries dropped 7.1%, while outpatient surgeries fell by a much lower 1.6 .

The hospital operator's Duke LifePoint Healthcare business adds an extensive array of clinical services and systems to LifePoint's operations. LifePoint stated during a recent health conference that part of its growth strategy is to attract patients by expanding services related to cardiology, oncology, surgery, and imaging.

Its important to note that larger players within this group, such as HCA Holdings, may thwart LifePoint's strategy to attract patients. HCA is also deepening its core services and increasing its number of access points. Part of the company's growth strategy is to renovate existing facilities and to open new ones, such as free-standing emergency departments, ambulatory surgical centers, and urgent care centers. After investing $5.2 billion from 2011 to 2013, HCA is planning to spend an additional $2 billion during 2014

3. Improvements to operations
LifePoint has also been investing in operational enhancements that improve efficiency at its hospitals. By partnering with Parallon, a leading provider of shared services, the hospital has been able to improve its purchasing, accounts payable, and revenue cycle functions. With greater efficiency, the company is better able to manage its costs and capture revenues over the long term.

In 2013, the company estimated that the changes implemented improved EBITDA by $7 million to $10 million . During fiscal 2013's third quarter, LifePoint reported an adjusted EBITDA increase of 25% to $134 million. It will be interesting to see whether these enhancements have affected LifePoint's doubtful accounts, which stood at about 18% of 2013 third quarter revenues, an increase of about 1% from 2012.

These improvements enhance the delivery of patient care and also make the company more competitive. Rival Community Health Systems has also invested in operational improvements to the tune of $769 million during 2012. These improvements included enhancements to facilities and addition of new technology and clinical systems

My Foolish conclusion
Thomson Financial analysts predict that LifePoint's average fourth quarter revenue will come in at about $952 million, which reflects sale growth of almost 7% from 2012. Fourth quarter EPS is estimated at $0.80, an increase of almost 4% compared to 2012. LifePoint Hospitals is doing a lot to keep its hospitals profitable and its stock stands out with better long-term growth prospects than other hospital operators.

Picks for Sky High Stock Returns

They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Eileen Rojas has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers