B.A. in economics,
University of Virginia
. Rice joined
as the senior health care facilities analyst in 1998. He has worked as an analyst covering the sector since 1991. His previous firms include
Credit Suisse First Boston
Industry Outlook and Style
While Rice isn't anticipating a repeat of last year's stellar performance, he's positive about health care facilities stocks and expects the group to outperform the broad market in 2001. "Obviously, with the backdrop of a slowing economy hitting a number of the other sectors, that bodes pretty well for our group, and with Medicare spending on an upswing, at least over the near to intermediate term, and private pay rates still pretty good," he says. He predicts hospital stocks will be up 15% - 20% during the next 12 months.
Another plus for the group is the passage of the 2000 Beneficiary Improvement and Protection Act (BIPA), which the Merrill Lynch analyst believes will "turbocharge" Medicare reimbursement. The act won't affect the companies until April 1, he notes, "so the benefits of that are yet to be fully reflected in the numbers." The industry is also benefiting from volume growth and consolidation activity, particularly in rural and secondary markets.
The nursing shortage and accompanying higher labor costs have been a concern in the industry for some time, Rice observes. But, he adds, "a lot of these workers are second wage earners, so
in a slowing economy we might see some easing of pressure on the labor expense line, which would be another positive."
The most difficult scenario for this defensive group would be a rapid rebound in the economy and a 50% gain in the equity markets, says the analyst. But he and his associates believe this is unlikely to happen. Rice's favorite name in the sector is
, which he believes will do well if the economy continues to degenerate or even if it stabilizes with very modest growth. (Merrill Lynch has done investment banking for the company.)
Favorite stock for next 12 months:
"The nursing home group is probably six to nine months behind the hospital group in making its positive turnaround, so we think we're early in recognizing the turnaround. Manor Care is the premium quality name in the nursing home group, and we perceive that they're firmly on a growth footing again. I think it's still not widely recognized among investors. Target is $28 for the next six to 12 months."
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Which stock do you like best?
Rice: Manor Care