Wall Street analysts expect steady growth in the health care sector; look for local companies to improve

Wall Street analysts expect steady growth in the health care sector; look for local companies to improve

Analysts Ana Gupte, John Ransom, Sarah James and A.J. Rice spoke to a group of about 600 people at a Nashville Health Care Council event at the J.W. Marriott in Nashville on Wednesday. // Photo Matt Blois


A group of wall street analysts predicted that the health care sector will continue to grow at a steady rate in 2019, but some are hoping local companies will improve their performance this year. 

The analysts spoke at an event hosted by the Nashville Health Care Council on Wednesday afternoon. The panel was moderated by Joey Jacobs, the former CEO of Acadia Healthcare.

John Ransom, Managing Director of health care research at Raymond James & Associates, pointed out that the health care industry as a whole has outperformed the S&P 500 in seven of the last eight years. He said he expected that trend to continue in 2019, but there were some areas of concern.

Ana Gupte, managing director for health care services at the investment bank Leerink, said that companies that provide acute care could face some challenges in 2019. Local companies such as Community Health Systems, Quorum Health and LifePoint Health all provide acute care.

“We see some opportunities for turnaround. Some of the executives here are in the middle of that,” she said. “Fundamentally, volumes have been challenged. It’s my view that it’s a structural call. It’s not cyclical really. It’s not related to the economy. It’s been about shifting to lower cost services.”

She said part of the challenge is that more people now have high deductible insurance plans, so they are more conscious about picking lower cost health care.

The good news is that some of the major threats to the economy as a whole won’t affect the health care industry quite as much, according to A.J. Rice the Managing Director at Credit Suisse.

While many industries are worried about deteriorating trade relations with China, rising interest rates and the possibility of a recession, he said health care companies don’t have to worry quite as much.

“As a general rule, there are pockets in health care that either have no exposure to that, a lot of the services have no exposure to the international stuff or very little,” he said. “Also, managed care benefits from rising interest rates, in their investment portfolios.” 

Most of the analysts on the panel identified managed care, which includes health insurance companies, as an area of particular growth. Rice called those companies the best performing area of the health care industry in 2018.

At the end of the panel, Jacobs asked the analysts to identify a smart health care stock pick for 2019, and one stock that isn’t doing so well now but might improve. Jacobs took health care giant HCA off the table.

Sarah James, principal and senior research analyst at the investment bank Piper Jaffray, picked Franklin-based Community Health Systems as a stock that could turn around in 2019. She said she liked how executives have been cutting costs.

“When I think about who has a great opportunity and is really doing some serious work on changing their business model, Community Health comes to mind,” she said. “They’re doing a great job of really focusing in on rationalizing their portfolio and then also cost control across multiple levers, equipment, supplies and staffing. That’s one where, if executed well, it could be one that stands out.”

Community Health Systems’ stock was selling for more than $5.60 at the beginning of last year — after dropping from nearly $20 since the spring of 2016 — but has since fallen to about $3.75. The company plans to continue selling hospitals in less profitable markets.

The Nashville Health Care Council has scheduled a panel about health care policy at 11 a.m. on February 27 at the Renaissance Hotel in Nashville.

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