LifePoint Hospitals fundamentals should appeal to investors
LifePoint Hospitals: A critical investment profile (Part 10 of 10)
Comparing valuations
Healthcare companies, represented by the Healthcare Select Sector SPDR Fund (XLV), are generally analyzed using a forward EV/EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple.
The graph above shows that LifePoint Hospitals (LPNT) traded between a 4.3x and 7.4x EV/EBITDA since April 2011. And, since January 2014, Universal Health Services (UHS) and LifePoint Hospitals have traded higher than both HCA Holdings (HCA) and Community Health Systems (CYH).
Fundamental analysis
The Affordable Care Act has boosted patient admissions and revenues for the entire for-profit hospital industry. As the number of insured people has grown and the US economy has improved, more patients are opting for health services, especially those related to preventive health such as regular checkups, mammograms, etcetera.
LifePoint Hospitals facilities are mainly located in non-urban areas where the company is either the sole or a significant provider of hospital services. This unique strategy of operating in areas where there is minimal local competition is expected to yield sustainable profits for LifePoint Hospitals.
The company is also acquiring facilities in states that have adopted or are expected to adopt Medicaid expansion in the near future. This strategy has allowed it to establish a network of LifePoint Hospitals health care providers in the upper peninsula of Michigan, and another in Pennsylvania. By hiring the right talent and developing new service lines, the company is attempting to retain its patients.
Quality of care
In 2011, LifePoint Hospitals entered into a hospital engagement network, or HEN, with the Department of Health and Human Services. The HEN initiative was designed to identify and share best-practice solutions related to hospital procedures, with a view to ensuring greater patient safety. LifePoint Hospitals was the only for-profit hospital provider selected by the Center of Medicare and Medicaid Services to be a part of the HEN.
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