Our Underperform rating on LPNT has been based upon concerns that EBITDA has been declining ex-acquisitions, coupled with limited FCF due to leverage and capex commitments made on acquired facilities. While these concerns generally remain, we become more constructive on the stock given current valuation levels, declining capex in 2019 and the potential for portfolio rationalization. Our recent meeting with management included a tone that appeared very much focused on shareholder value creation, including limiting M&A and instead focusing on operations, and we see the potential next step being a portfolio optimization review. With peers THC and CYH making moves to divest lower margin hospitals to strategic buyers at meaningful multiples, we expect LifePoint management may take a look at this strategy as well. Given the combination of valuation, improving FCF and portfolio optionality, we upgrade our rating to Peer Perform and revise our YE 2018 price target to $55.
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We recently had the opportunity to meet with executives from HCA, ACHC, LPNT and SRGY on our Nashville bus tour. We came away increasingly confident in strong business momentum at HCA, while ACHC and LPNT are digging in operationally and looking for improved performance in 2018. Finally, new CEO Wayne DeVeydt is excited to tackle both the operational turnaround and growth opportunities ahead of him at SRGY.
UHS reported 4Q17 adjusted EBITDA-NCI of $447M vs. WR/Consensus of $424M/$422M. Adjusted EPS was $2.00 vs. WR/Consensus $1.84/$1.83. Cash revenue was $2.64B vs. WR/Consensus $2.58B/$2.63B.
CYH reported adjusted EBITDA of $409M, above WR/Consensus of $406M/$395M. Adjusted EBITDA excludes a $591M AR write-down associated with the adoption of new revenue recognition standards. Cash revenue (also ex AR write-down) were $3,650M versus WR/Consensus of $3,554M/$3,534M. Same store adjusted admits -90bps, 80bps above our estimate and likely aided by flu (not quantified). Same store net revs increased by 1.8%, implying 2.7% pricing growth.
THC reported 4Q17 adjusted EBITDA of $840M, well above WR / Consensus of $797M/$792M. We note that CA provider fee revenue of $267M was ~$42M above previous guidance of $220-$230M, absent this the quarter would have been generally in line with Hospital results below our estimates, offset by stronger results at Ambulatory and Conifer. THC increased 2018 adjusted EBITDA guidance by $25M (~1%).
LPNT reported adj EBITDA of $182M versus WR / Consensus of $185M/$183M but excluded a $73m A/R write off due to changes in collectability assumptions. Cash revenues (adjusted for $73M A/R write-off) were $1,563M in-line with our est and ~1% below Consensus $1,581M. Same store adjusted admissions decreased by 0.1%, an improvement vs. -1.5%/-2.2% in Q2/Q3, likely helped by an elevated flu season. Core trends remain a concern here, underscored by flat y/y 2018 EBITDA guidance at midpoint.
DVA reported adj EPS of $0.92 compared to WR/Consensus of $0.93/$0.93. Our est included DMG, which DVA treated as discontinued ops - our est would have been $0.84 ex DMG. DVA reported significant upside in U.S. Dialysis, with $459M OI vs. our $428M est. Q4 benefited from $14M of shared savings payments and a positive $9M insurance reserve adjustment. DVA reiterated previous 2018 Kidney Care OI guidance of $1.5-$1.6B (Wolfe est. $1.58B) and slightly increased tax rate guidance but still expects a $110-$130M benefit from tax reform. We are maintaining our segment estimates but moving DMG to discontinued ops. Combined with tax reform, our cash EPS increases ~20% in 2019-2020 but remains unchanged in 2018 as DMG reclassification offsets tax reform benefit. With operating momentum improving in 2018 and likely to improve further in 2019 we continue to see an attractive risk/reward while noting that investors should look for the next debate with management to be around capex spending and returns on investment going forward.
Outpatient flu data released by the CDC on Friday (02/02/18) showed an increase in flu visits and this flu season is now on track to be the worst since the 2009-2010 H1N1 epidemic. Our checks w/NFPs and for-profit earnings commentary indicated Q4 results were only modestly impacted with somewhat higher flu costs offset by fairly benign trend. However, with the most recent pickup in last 2 weeks including reports of deaths and jammed hospital ERs we expect this to be further vetted on Q4 reports this week (CNC/HUM/WCG/CVS). Whatever the cost it is clear it will be transitory in nature and to the extent MCOs see Q1 MLR pressure look for it to be generally offset by cushion to #s from tax reform related investment spend. For now we lay out 2009/2010 MCO and Hospital commentary re flu costs from H1N1 for comparison - see Exhibits 2 and 3 starting on page 3
Adjusted EBITDA of $2,362M (up 7.1% y/y) was well above WR / Consensus estimates of $2,181M / $2,191M driven by strong cash revenues of $11.55B ahead of WR / Consensus of $11,280M / $11,207M. Same-store adjusted admissions increased 2.3% (strongest growth since 1Q16), driven in part by a strong flu season. Acuity/mix was a big driven in the quarter with case mix up 5% and commercial pricing up 8%.
This morning (1/11/2017) CMS put out a press release announcing new Medicaid policy guidance for states requesting work / work-search requirements for able-bodied adults enrolled in Medicaid. This follows a March letter from former HHS Secretary Price and CMS Administrator Verma to state Governors indicating that the administration would support Medicaid waiver applications and was committed to “ushering in a new era for the federal and state Medicaid partnership where states have more freedom to design programs that meet the spectrum of diverse needs of their Medicaid population”. Today’s press release and accompanying letter to state Medicaid directors goes beyond general support for work / work-search requirements and outlines considerations for states designing waiver requests or demonstration projects, such as considering alignment of eligibility requirements with existing SNAP / TANF requirements, ensuring compliance with federal civil rights protections for individuals with disabilities, fl
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