LifePoint on Life Support
Updated from 10:45 a.m.
LifePoint (LPNT) has taken a definite turn for the worse.
Shares dropped 15% after the rural hospital operator said profits plunged in the second quarter. Weak admissions and rising expenses, including a spike in bad debts from the uninsured, have been hammering the company's operations. LifePoint also trimmed full-year guidance.
Second-quarter income fell some 61% to $13.4 million, as escalating costs in three different areas -- bad debts, labor costs and malpractice insurance -- took a heavy toll on the bottom line. Earnings per share from continuing operations came in at 43 cents, well short of the 61-cent consensus estimate. Revenue, while up 17% to $654 million, fell shy of Wall Street targets as well.LifePoint's skyrocketing bad-debt expense seemed to worry analysts most. At 12.4% of revenue in the latest quarter -- up from 10.2% a year ago -- it sent the company's profit margins to their lowest level in recent memory. Moreover, LifePoint foresees ongoing challenges ahead. The company now expects to generate profits of just $2.15 to $2.25 a share for the full year. On average, analysts have been forecasting 2007 profits of $2.60 a share instead. "While we are not satisfied with our second-quarter performance ... we are taking appropriate actions to address these issues," LifePoint CEO William Carpenter stated on Monday. "We are confident that, by investing in and working closely with the communities in which we operate, we will be able to provide the highest quality care for our patients and at the same time drive enhanced value for our shareholders." Ultimately, Carpenter added, "we are confident in the future success of our business." But investors clearly have their doubts. They fled the stock, sending the shares down 13% to $33.92 -- a price unseen since early this year -- in heavy trading on Monday. Jefferies analyst Frank Morgan warned of serious pain for the hospital group as a whole. "We expect a very negative reaction on LifePoint's reported results," Morgan wrote early Monday morning. "We are particularly concerned about the spike in bad debt. ... While this sudden increase in bad debts may still be specific to LifePoint, we expect that the entire sector will trade down based on this news." Indeed, shares of three major hospital chains -- Community Health (CYH), Tenet (THC) and Universal Health (UHS) -- all fell by more than 3% following LifePoint's warning. Morgan has a hold recommendation on LifePoint's stock, which he valued at $42.50 ahead of the company's update. His firm makes a market in the company's securities.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV