Are Hospital Stocks At Risk Amid Medicaid Funding Fears? RBC Downplays Worries While Retail Eyes Q1 Results

Shares of Universal Health Services (UHS), Tenet Healthcare (THC) and HCA Healthcare (HCA) fell between 5% and 10% on Monday after a report suggested their fortunes hinged on the current political climate as much as fundamentals. One Wall Street analyst, however, begged to differ.

The Wall Street Journal highlighted UHS, THC and HCA as key beneficiaries of Medicaid supplemental payment programs that cost the federal government hundreds of billions.

The report acknowledged that some Republican lawmakers do not want to touch Medicaid, which covers 79 million people.

However, the Journal suggested that UHS, as well as THC and HCA, "could be in a world of hurt" if hawkish GOP legislators manage to get their way and convince the Trump administration to slash Medicaid spending to meet its deficit-reduction goals. 

According to the report, last year, Medicaid outlays totaled $618 billion — or 9% of the federal budget. 

However, RBC Capital Markets weighed in on the stock weakness by rebutting the Journal's tone, arguing that Medicaid programs were compensating for years of chronic underfunding.

According to The Fly, RBC said Medicaid spending was politically harder to unwind than the Journal suggested, adding that many small and rural hospitals depend on these payments to stay afloat.

The research firm said that cutting these programs could significantly impact healthcare access for millions, including many Trump supporters.

The most likely scenario? RBC predicted a modest reduction in the provider tax hold-harmless rate from 6% to 5% rather than sweeping changes. 

Given the political and healthcare access implications of severe cuts, it continues to view the recent selloff in hospital names as overdone.

On Stocktwits, sentiment for the stocks mentioned in the report was mixed, with UHS’ retail following remaining ‘neutral, while THC’s was ‘extremely bullish’ and HCA’s was ‘bearish.’

Most users are awaiting first-quarter results from the healthcare companies. 

HCA is due to report its Q1 financial report on Friday, with Wall Street expecting adjusted earnings per share of $5.75 on revenue of $18.26 billion.

Tenet and UHS will release results next week, with the former expected to report adjusted EPS of $3.13 on revenue of $5.15 billion, and the latter, $4.35 on $4.15 billion.

Year to date, shares of Tenet and UHS are down over 13%, while HCA is up more than 4.8%.

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