New Bull Market in Hospitals?

The bull market for hospitals was restarted on Friday.  As you probably will recall, I talk a fair amount about the seasonality of the hospital stocks and we are going into the seasonally strong period which lasts through some time in May.

The reaction to the Community Health offer to buy Tenet was astounding .. not on the Tenet side but on the CYH side.  CYH traded down $1.40/share after the announcement and opened down.  Then the stock roared up 13% on the day, trading up $4.25 on the close, over 5 ½ points higher than the low.

HMA was up over 4%, Lifepoint over 5%.  Some of these gains were probably due to an expectation that a new consolidation phase may have begun, but I think more likely is that the hospital stocks are well under valued relative to historical levels.

The 5 major public companies are trading at 7.1x LTM EBITDA and 0.90x revenue.  While that’s higher than it has been in the past year, these stocks have historically traded 25% higher.

The other positive for 2011 is that this sudden increase in hospital focus should allow HCA to complete its IPO which I think would be very good for the entire sector, and probably will have some bleed over positive impact on AmSurg, HealthSouth, the nursing homes and maybe even the ancillary healthcare service companies like Lincare & Healthways.  Notice that I didn’t include home health.