9 January 2009
Health Care Providers
2009 Outlook: Rating, PT,
Estimate Revisions
Darren Lehrich
Research Analyst
(+1) 212 250-2629
darren.lehrich@db.com
Sudeep Singh, CFA
Associate Analyst
(+1) 212 250-1394
sudeep.singh@db.com
Pito Chickering
Associate Analyst
(+1) 212 250-4817
philip.chickering@db.com
Health Care Providers: 2009 Outlook
Our 2009 Outlook report includes detailed sector/company-specific commentary
and analysis on our coverage universe, which includes 23 different health care
providers spanning the acute care, outpatient and post-acute segments. Bottom
line: in keeping with the DB house view that we are heading into a deeper and
more prolonged recession, we believe a defensive posture is warranted. As such,
DVA is our Top Sector Pick. We remain cautious on acute care hospitals, ASCs
and behavioral, and very selective elsewhere amongst small/mid-caps.
Deutsche Bank Securities Inc.
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Forecast change
Companies featured
Alliance Imaging Inc. (AIQ.N),USD8.60 Buy
Amedisys Inc (AMED.OQ),USD47.00 Hold
Amsurg Corp (AMSG.OQ),USD22.48 Hold
Chemed Corp (CHE.N),USD39.67 Hold
Community Health Sys.(CYH.N),USD17.97 Hold
DaVita (DVA.N),USD47.50 Buy
Dialysis Corp Of America (DCAI.OQ),USD6.80 Buy
Gentiva (GTIV.OQ),USD26.05 Buy
Health Mgmt Assocs. (HMA.N),USD2.15 Hold
HealthSouth Corp. (HLS.N),USD11.12 Hold
IPC The Hospitalist Co. (IPCM.OQ),USD15.10 Buy
LifePoint Hospitals (LPNT.OQ),USD24.40 Hold
Lincare Holdings, Inc. (LNCR.OQ),USD26.95 Buy
MedCath Corporation (MDTH.OQ),USD10.27 Hold
Mednax Inc. (MD.N),USD33.15 Hold
LHC Group Inc (LHCG.OQ),USD33.60 Hold
Odyssey HealthCare Inc (ODSY.OQ),USD9.40 Buy
NovaMed Inc (NOVA.OQ),USD3.48 Hold
Psychiatric Solutions Inc (PSYS.OQ),USD26.10Hold
RadNet Inc. (RDNT.OQ),USD3.67 Buy
RehabCare Group (RHB.N),USD15.54 Hold
Tenet Healthcare (THC.N),USD1.45 Hold
Universal Health Services (UHS.N),USD39.63 Hold
Global Markets Research Company
Where to be…and what to avoid in 2009
We believe 2009 will be an eventful year -- with the backdrop dominated by both
weak macro-economic trends and the specter of health care reform.
Fundamentally, we see a tough year ahead, but we believe money-making
opportunities do exist in certain sub-sectors. We highlight DVA as our Top Pick
due to its inelastic demand characteristics, resilient earnings profile and strong
financial position. We also like LNCR as a contrarian (and slightly higher beta) idea
due to its ability to accelerate market share amidst well-known industry-wide 2009
Medicare cuts and the potential for it to re-invigorate its M&A strategy. Among
small caps, we believe the risk/reward on AIQ remains particularly attractive due to
its emerging growth strategy in the oncology segment and resilient demand in
PET/CT (now 40% of revs). Conversely, we are more cautious on the ASC sector
due to the discretionary nature of some procedures and the potential for a margin
squeeze if SS growth falls-off. We are also cautious on the behavioral sector due
to Medicaid/state funding risks, and we are becoming increasingly cautious about
the Medicare reimbursement outlook for home health.
What’s in this report?
This 77-page report includes much data relevant to the sub-sectors we track and
each company in our coverage, including an in-depth review of long-term hospital
trends (volumes, bad debt, pricing & capex). This report changes ratings, price
targets, and/or estimates for several companies under coverage (for a detailed
listing of these changes, see fig. 1): (1) downgrading micro-cap ASC operator
NOVA to Hold on our more cautious sub-sector view; (2) increasing AMED
estimates to reflect recent bullish guidance; our revised estimates acknowledge
that the likelihood of a near-term change to AMED’s A/R reserving policies look
very low. Yet we’ve set our EPS forecast to the low-end of 2009 guidance to
reflect relatively low conviction, and we maintain our concerns about AMED’s bad
debt reserve policy; we will probably respectfully disagree for some time about
the need to establish higher bad debt reserves – regardless of payer class – for its
A/R as it ages; (3) lowering our target prices on PSYS to $33 to reflect TEV multiple
contraction that has taken place in the broader market and on RDNT based largely
on lower estimates in 2009; and (4) lowering estimates on micro-cap imaging
player RDNT to reflect softer diagnostic imaging volumes in 2009.
Valuation and risks
We use P/E and EV/EBITDA-based valuations for the stocks discussed in this
report. We select what we deem to be an appropriate multiple on our ests based
on our assessment of risks and opportunities. Key risks include: competition,
integration risk, changes in Medicare/Medicaid pricing, and rising operating costs.