An aging U.S. population may bode well for health-care stocks in the future, but hospital operator LifePoint
The company originally forecast earnings for Q4 2005 between $0.61 and $0.65 per share. Now the company says that lower volumes, start-up costs, slow ramp-ups for new hospitals, bad debt, physicians, and a difficult state and federal reimbursement environment have combined to clobber its earlier estimate. After listening to the conference call, this observer wondered what, exactly, was going right.
LifePoint also trimmed back 2006 expectations. The 18 analysts who follow the company had projected earnings of $2.70 to $3.01 for this year. Surprise! The company expects to see earnings of $2.18 to $2.35 a share instead. LifePoint did say that its projections did not include hospitals it expects to acquire this quarter from HCA
Today, shares of competitors Health Management Associates
Using the low end of 2006 guidance, LifePoint is selling for 13.6 times earnings. That would be dirt cheap for a company that was expected to grow earnings by an annual 15% before today's mishap. But with so many prominent problems, I anticipate that it will take time for this company to get back on track.
Conservative investors should step aside and watch from the sidelines. Aggressive investors might want to take a closer look at this stock, since competitors Health Management and Community Health look to be trading at a relative premium. While LifePoint's problems are real enough, the company should have had ample opportunity to weigh them before today's announcement (including touchy reimbursement issues). If earnings are close to what is now projected, long-term investors will be rewarded with a value-priced stock in a sector with apparently excellent long-term growth prospects.
Are you looking for great companies selling below their intrinsic value? Each month, Motley Fool Inside Value brings you two unsung selections from Wall Street's bargain bin. Sign up today for a 30-day free trial subscription.