Rural hospital operator Health Management Associates
Recent conditions remain tough in the hospital industry. The majority of hospital stocks are stuck near their lows for the year, including that of another rural operator, LifePoint Hospitals
I initially invested in HMA, as opposed to industry leader and Berkshire Hathaway investment HCA
HMA does have higher operating margins than the industry average, but it's also having trouble with patients. The uninsured are unable to pay, while the insured appear to be holding off on procedures to avoid paying higher up-front or co-payment charges. I'm also concerned that this instability is occurring during a relatively strong economy; what happens if the domestic market heads south? Management is still buying outside hospitals, but given the industry's overall weakness, it may likely find it harder to enhance operating margins.
HMA still has a strong track record of double-digit sales and earnings growth, but the past couple of years have been more of an uphill battle. I'm consoled that the company should be able to cover most of the unpaid bills from its uninsured clients, and that operating cash flow continues to be strong. However, internal growth has been weak, leaving HMA dependent on riskier acquisition growth, and the hospital industry's high levels of regulation create high capex needs. It could certainly be worse -- just check out Tenet Healthcare's
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Fool contributor Ryan Fuhrmann is long shares of HMA but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.