The Contrarian View on Health Management Associates: HMA, THC, CYH Poked and Prodded

Dec 3, 2012 7:27:52 AM PST | 263 View(s) | No Comment(s) - Post a Comment Rating

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StockHQ:

CYH
$49.66 -$0.21 -0.42%
THC
$45.52 -$1.15 -2.46%
HMA
$16.06 +$0.05 +0.31%

With just a superficial look at the hospital-management group today, it would be easy to assume Health Management Associates, Inc. (NYSE:HMA) is a sell, while peers and competitors like Community Health Systems (NYSE:CYH) and Tenet Healthcare Corporation (NYSE:THC) are a buy. HMA is deep in the red (to the tune of -6.0%), while THC and CYH are up a tad. And, neither Tenet Healthcare nor Community Health Systems are contending the really, really bad publicity that Health Management Associates is contending with this morning. As is so often the case though, this morning's rough ride for HMA may ultimately be a buying opportunity, as the market is apt to forget about the black eye as soon as another company gets one, and that steals the show.

At the heart of the issue is a story that ran on 60 Minutes last night, suggesting that Health Management Associates unnecessarily admitted patients into its hospitals for overnight stays, and implying that the end-goal was to rack up insurance payments that could have possibly been fraudulent. HMA has already responded (and even responded to the news program before it aired the story) that its admissions statistics - and billables - were nothing out of the ordinary, and in-line with the likes of competitors such as Tenet Healthcare and Community Health Systems.

The truth? Most of the time (in the market anyway), where there's smoke, there's some fire. At the same time, most of the time (in news and media anyway), the agenda of a story is determined before any of the story's research is done, and only the supporting pieces of data - or opinions - are ever aired. The net effect is simple.... HMA is most likely not as guilty as 60 Minutes has implied, nor is the company as innocent as it is implying. The real truth will never actually be known, but it probably somewhere in the middle.

All that being said, opportunistic investors can be - and should be - looking at today's beat-down as a potential entry point.

To be fair, Health Management Associates, Inc. didn't have a great third quarter. Earnings were off from the year-ago numbers, and the bottom line missed analyst estimates. Yet, the company has shown skillful acquisitions and turnarounds of underperforming hospital groups, and at only 8.3 times its forward-looking earnings estimates, is priced at bargain levels relative to peers like THC or CYH. Factor in the fact that Obamacare's insurance mandate is almost assuredly going to be allowed to be fully enacted come 2014, and there's quite a bit of upside the market is choosing to ignore now. The market is fickle though, and as quickly as the scoffing at HMA materialized, it can fade, as traders start to look at the potential again.

James E. Brumley is a paid contributor of the SmallCap Network. James E. Brumley's personal holdings should be disclosed above. You can also view SmallCap Network's complete disclaimer and disclosure.