2023-04-19 09:21:01 ET
As industry bellwether HCA Healthcare ( NYSE: HCA ) expects to report Q1 2023 earnings later this week, JPMorgan revisited its coverage of healthcare facilities Wednesday, citing bullish views on Tenet Healthcare ( NYSE: THC ).
The analyst Calvin Sternick and the team predict margins to come under pressure across the sector in 2023 amid slower earnings growth, given difficult comps linked to waning COVID volumes and last year's favorable pandemic-era revenue items.
However, they expect commercial reimbursement and softening labor expenses to offset the impact and financial trends to improve over the year.
"…we see potential for modest margin expansion in 2024 as we think reimbursement could remain a tailwind for hospitals and as volume and cost trends continue to normalize," the analysts added.
JPMorgan initiated its coverage on Tenet ( THC ) with an Overweight rating and a $72 per share target, noting that the stock in terms of 2024 adj. EBITDA trades at a discount to five/ten-year forward averages.
"We believe the current valuation overly discounts near-term operational headwinds THC's reduced leverage, and stronger FCF, offering investors a relatively more attractive risk/ reward profile vs. peers," Sternick and the team argued.
The analysts argued that despite a more aggressive approach in the past, the company would be a little more conservative in issuing guidance for 2023.
Meanwhile, raising the $257 price target to $283 per share, JPMorgan maintained its Neutral rating on HCA ( HCA ), noting that its valuation already reflects the company's competitive positioning with EV/EBITDA multiple above historical averages.
The firm also launched its coverage on Universal Health Services ( NYSE: UHS ) with a Neutral rating and a $133 per share target citing a less attractive risk/reward setup compared to rivals as its forward EV/EBITDA multiples stand in line with its long-term averages.
Despite favorable ratings on Wall Street, Seeking Alpha analyst Pioneering Ideas issued a Hold rating on Tenet ( THC ) in March, given multiple factors, including high leverage.
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JPMorgan reviews hospital coverage ahead of HCA earnings