A filing with the SEC has disclosed that Glenview Capital now owns close to 34 million shares of Health Management Associates, Inc. (NYSE:HMA), a $2.3 billion market cap hospital operator. This gives the fund, which is managed by former Omega Advisors trader Larry Robbins, over 13% of the outstanding shares of the stock. According to its 13F for the third quarter of 2012, Glenview had owned about 26 million shares and this in turn had been up 47% from three months earlier; the fund was overweight the healthcare sector at the end of September. See the full list of Glenview’s stock picks.
In the third quarter of the year, net revenue was up 18% compared to the same period in 2011. This is roughly the same growth rate Health Management Associates, Inc. had been experiencing in the first half of the year. However, costs have also been up strongly and so net income has been down, though the rate of decline was low last quarter. At the current market price the trailing P/E is 16, which is moderately low but should be accompanied by at least modest growth or strong prospects for improvement. Clearly Glenview is in that camp, and it’s also notable that in mid-December a company insider bought 10,000 shares at an average price of $7.76 per share (read more about the insider purchase). We track insider purchases because they indicate that an insider is confident enough in the company to ignore the benefits of diversification; studies show that stocks bought the insiders beat the market on average (though not always) (learn more about studies on insider trading).
Analyst consensus is also bullish, with consensus for 2013 being 89 cents of earnings per share; this would imply a forward P/E of 10. Glenview was by far the largest hedge fund holder of Health Management Associates, Inc. at the end of last quarter in our database of 13F filings, though Carlson Capital and billionaire David Shaw’s D.E. Shaw were buying the stock.
The largest publicly traded U.S. hospital is HCA Holdings Inc (NYSE:HCA). HCA trades at a discount to Health Management according to Wall Street analysts, with a forward P/E of 9. It too had its sales come in higher last quarter than in the third quarter of 2011; though the growth rate was lower than Health Management’s at 11%, we’re not sure that is enough to justify expectations of continually lower growth. Of course, the combination of a low multiple and recent top-line growth suggests that HCA might be a good value in its own right, and it could be worth it to take a closer look at the company.
Other hospital stocks include Universal Health Services, Inc. (NYSE:UHS), Tenet Healthcare Corporation (NYSE:THC), Community Health Systems (NYSE:CYH), and LifePoint Hospitals, Inc. (NASDAQ:LPNT). Community Health Systems is an outlier at 8 times forward earnings estimates, which could be explained by the fact that the company saw a sharp hit to its earnings last quarter versus a year earlier and analyst estimates depend on improvement in 2013. The other three hospitals all carry a forward P/E of 11, but there has been a wide spread in terms of their recent financial performance. Looking at revenue growth in their most recent quarter compared to the same period in the previous year, Universal’s sales were up 3%; Tenet’s were up 6%; Lifepoint’s were up 14%. Since there are some differences among these companies- Universal, for example, operates behavioral health centers in addition to hospitals- they are not as directly comparable with Health Management as we would like. Still, they seem priced about even.