Trading the Obamacare Ruling: For-Profit Hospital Stocks THC, HCA & CYH

Later this morning, the US Supreme Court is expected to issue its decision on Obamacare, otherwise known as the Patient Protection and Affordable Care Act, meaning its a good time to take a closer look at for-profit hospital stocks Tenet Healthcare Corporation (NYSE: THC), HCA Holdings (NYSE: HCA) and Community Health Systems (NYSE: CYH). After all, for-profit hospitals will be a big winner under Obamacare because they will no longer have to worry about bad debts from the uninsured as everyone will have some kind of healthcare coverage. On the other hand and if much of Obamacare is struck down, for-profit hospital stocks will need to continue treating the uninsured – meaning their profits and growth will be effectively capped. Irrespective of how the Supreme Court rules on Obamacare, are for-profit hospital stocks Tenet Healthcare Corporation (THC), HCA Holdings (HCA) and Community Health Systems (CYH) worth taking a look at by investors or traders alike?

Starting with Tenet Healthcare Corporation (NYSE: THC), its one of the largest investor-owned health care delivery systems in the nation with 50 hospitals in 11 states and 99 outpatient center. In early June, Tenet Healthcare Corporation stated at the Jeffries Global Healthcare Conference that while pressure on state budgets has led to cuts but it was added that these challenges appear to be behind the company. Otherwise, investors should note that Tenet Healthcare Corporation has recently announced a big 10 year contract win with Catholic Health Initiatives for 56 of its hospitals that will be implemented in 2013. Naturally there will be start-up costs associated with the contract but CHI’s system has 61 hospitals, 20 long-term care facilities and a number of outpatient facilities along with $9.6 billion in revenue (THC’s 2011 revenue was $8.9) – meaning Tenet Healthcare Corporation is in for a growth spurt. On Wednesday, Tenet Healthcare Corporation rose 1.22% to $4.98 (THC has a 52 week trading range of $3.46 to $6.54 a share) for a market cap of $2.06 billion plus the stock is down 2.92% since the start of the year, down 16.9% over the past year and down 24.4% over the past five years.

Meanwhile, HCA Holdings (NYSE: HCA) was founded in 1968 and was one of the country's first hospital companies. Today, HCA Holdings around 163 hospitals and 109 freestanding surgery centers in 20 states and England with approximately 4% to 5% of all inpatient care delivered in the US being provided by HCA facilities. Its worth noting that in early May, HCA Holdings reported that first quarter revenues rose 13% from $7.41 billion to $8.41 billion while net income rose from 240 million to $540 million after the company had taken a charge of $181 million after terminating a management agreement during the same period last year. Medicare revenue adjustment also added $188 million to revenue plus HCA Holdings raised its profit forecast from $3.35 to $3.55 per share to $3.57 and $3.77 per share to account for the Medicare revenue adjustment. Its also worth noting that HCA Holdings has been making strategic acquisitions of high quality assets to further increase growth. On Wednesday, HCA Holdings rose 1.60% to $26.61 (HCA has a 52 week trading range of $17.03 to $34.92 a share) for a market cap of $11.68 billion plus the stock is up 20.8% since the start of the year and down 17.5% over the past year.

Finally, Community Health Systems (NYSE: CYH) owns, operates or leases 134 hospitals in 29 states with an aggregate of approximately 20,000 licensed beds – making it the second biggest hospital chain in the country. Moreover and in over 55% of the markets served, Community Health Systems -affiliated hospitals are the sole provider of healthcare services. Near the end of April, Community Health Systems reported that first quarter revenues rose from $3.2 billion to $3.3 billion while net income rose from $61.3 million to $75.5 million plus the company now expects net operating revenue (minus provisions for bad debts) to come in between $12.80 billion and $13.20 billion verses a previous estimate of $12.70 billion to $13.10 bill while net income is expected to come in between $3.85 and $4.10 per share verses $3.45 to $3.70. Otherwise, its worth noting that Community Health Systems has a good track record of buying and integrating revenue generating assets and hence, growth but the company has faced government investigations over its billing practices. On Wednesday, Health Systems rose 1.84% to $25.49 (CYH has a 52 week trading range of $14.61 to $27.63 a share) for a market cap of $2.34 billion plus the stock is up 46.1% since the start of the year, up 5% over the past year and down 37.4% over the past five years.

The Bottom Line. Regardless of how the Supreme Court rules on Obamacare, for-profit hospital stocks Tenet Healthcare Corporation (THC), HCA Holdings (HCA) and Community Health Systems (CYH) actually appear to have found ways to keep growing – despite having to deal with the uninsured.