The Patient Protection and Affordable Care Act (ACA), popularly known as “Obamacare,” sailed through another Republican-backed legal challenge after the U.S. Supreme Court ruled in favor of maintaining status quo on a core provision of the law.
Four Virginia residents challenged the provision that stated that people qualify for tax credits when they buy insurance on “an Exchange established by the state.” They argued that the phrase indicated that tax credits should not be available to states without their own exchange. Residents of these states (currently 34) use federal healthcare.gov system to purchase health insurance.
However, the argument was not favored by the majority of Supreme Court judges. Although the Supreme Court admitted ambiguity in the Act’s language, it ruled 6-3 in favor of the law citing that the provision “could also refer to all Exchanges — both State and Federal — for purposes of the tax credit.”
The positive ruling has brought a sigh of relief to various groups representing hospitals, doctors and insurers. An adverse ruling could have affected 6 million people, who would have been forced to drop their insurance cover owing to surging premiums.
Hospital stocks advanced most post the ruling. This was primarily driven by the fact that an insured customer base will lower charity care and bad debts. Simultaneously, it will increase admission rates owing to improving affordability among patients.
Below we present four stocks that are poised to gain from this trend, each of which also carries a favorable Zacks Rank.
Tenet Healthcare Corp. THC – This Zacks Rank #2 (Buy) stock surged 12.24% ($6.13) to close at $56.21 on Jun 25, 2015. This reflects a 1-year return of 19.8%. The S&P 500 increased 7.2% over the same period. We note that since the launch of healthcare.gov system on Oct 1, 2013, Tenet has gained almost 36%.
Meanwhile, Tenet reported that charity and uninsured admissions decreased 20.7% in 2014, as compared to 2013.
Tenet has delivered a positive average earnings surprise of 120.65% over the last four quarters. Moreover, for full-year 2015 and 2016, nine and eight earnings estimates have moved higher, respectively, over the last two months. The earnings revision trend has been favorable too, with estimates increasing 14% (28 cents) and 13% (13 cents) for 2015 and 2016, respectively.
Universal Health Services Inc. UHS – This Zacks Rank #2 company climbed 7.73% ($10.10) to $140.78 on Jun 25, 2015, representing growth of 48.2%, significantly above S&P 500’s 7.2%. The company attained a 52-week high of $144 in intra-day trading. Since the launch of healthcare.gov system, Universal Health has surged an impressive 87%.
For full-year 2015 and 2016 each, eight earnings estimates have moved higher over the last 60 days. Meanwhile, earnings estimates increased 2.6% (17 cents) and 2.7% (19 cents) for 2015 and 2016, respectively.
Community Health Systems Inc. CYH – Share price of this Zacks Rank #3 (Hold) stock gained 12.97% ($7.17) to close at $62.45 on Jun 25, 2015, representing solid growth of 36.8% as compared to S&P 500’s 7.2%. Community Health hit a 52-week high of $63.36 in intra-day trading. Since the launch of healthcare.gov system, Community Health has soared almost 48%.
Community Health has delivered a positive average earnings surprise of 44% over the last four quarters. For full-year 2015 and 2016, 11 and six earnings estimates have moved higher, respectively, over the last 60 days. The trend has been favorable too, with estimates moving up 2.8% (11 cents) and 1.3% (6 cents) for 2015 and 2016, respectively.
HCA Holdings Inc. HCA – This Zacks Rank #3 (Hold) stock rallied 8.82% ($7.35) to $90.72 on Jun 25, 2015, representing a strong 63.7% growth, much better than S&P 500’s 7.2%. The company also hit a 52-week high of $92.63 in intra-day trading. Since the launch of healthcare.gov system on Oct 1, 2013, HCA Holdings’ share price has doubled.
In 2014, HCA Holdings reported a 150 basis-point decline in provision for doubtful accounts (including uninsured discounts and charity care), as a percentage of revenues, compared to 2013. Meanwhile, consolidated admissions increased 2.9% and same facility admissions rose by 2.1% from 2013.
HCA Holdings has delivered a positive average earnings surprise of 2% over the last four quarters. Moreover, for full-year 2015 and 2016, seven and nine earnings estimates have moved up, respectively, over the last 60 days. The trend has been favorable too, with estimates increasing 3.3% (13 cents) and 3.2% (18 cents) for 2015 and 2016, respectively.
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