Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on big changes — just in case they’re material to our investing thesis.
What: Shares of Health Management Associates Inc (NYSE:HMA) , an acute-care hospital and health care facility operator in the U.S., jumped as much as 11% after a hedge fund noted interest in raising its stake in the company and following two analyst upgrades.
So what: The bump primarily comes from a filing with the Securities and Exchange Commission in which Glenview Capital — currently Health Management Associates Inc (NYSE:HMA)’s largest shareholders with 37.8 million shares – urged the company to abandon or amend its poison pill to allow it to acquire up to 25% of all outstanding shares (currently the cap is 15%). Glenview also noted in that filing that it’d consider replacing part or all of Health Management Associates Inc (NYSE:HMA)’s board of directors. In addition to this ongoing drama, research firms CRT Capital and WallachBeth upgraded Health Management Associates Inc (NYSE:HMA) to “hold” and “buy,” respectively, from previous ratings of “sell” and “hold.”
Now what: This certainly has all the makings of takeover chatter despite Glenview expressing previously that it never had any intention of purchasing a majority stake in the company. The bigger driving force, though, for hospital stocks like Health Management Associates Inc (NYSE:HMA) will be the implementation of the Patient Protection and Affordable Care Act in 2014, which will mandate individuals to carry insurance. The thesis here is that if people are required to carry insurance, then the bad debt provisions that stem from treating patients who can’t pay should shrink considerably and allow hospital margins to soar. You’d certainly be hard-pressed to find a sector ready to benefit more from Obamacare than the hospital sector, however, at 15 times forward earnings, I suspect you can find cheaper alternatives within the sector than Health Management Associates Inc (NYSE:HMA).
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The article Why Health Management Associates Shares Soared originally appeared on Fool.com is written by Sean Williams.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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