Ahead Of The Bell: Hospital Stocks Upgraded

NEW YORK (AP) — A Deutsche Bank analyst upgraded his outlook for acute care hospitals Monday, citing the prospects for health care reform, better industrywide expense control, and a slowdown in bad debt growth.

Analyst Darren Lehrich upgraded his view of the sector to "Positive" from "Neutral" in a note to investors. Separately, he boosted his rating for Community Health Systems Inc., Health Management Associates Inc., LifePoint Hospitals Inc., and Tenet Healthcare Corp. to "Buy" from "Hold." He reaffirmed a "Buy" rating on Universal Health Services Inc.

"Despite recent strength in hospital stocks, we believe the sector still has compelling upside from current levels," he said, citing better efforts at controlling labor costs and a relatively stable mix of patients and income. The latter has helped mitigate bad debt, which is the amount of debt a hospital incurs from treating uninsured or underinsured patients and has been unable to collect.

"One critical component of our sector upgrade relates to our belief that traditional fundamental investors may become drawn to the sector based on the secular theme of health care reform," he said.

The ultimate outcome of any reforms, including near-universal health coverage, should benefit the hospital industry, he said. He expects major legislation on the issue this year.