The weakness seen this week and generally speaking in shares of some healthcare services companies may be overplayed, especially in light of uncertainty around Community Health Systems (CYH - Get Report) after the company went public with its plans to explore options.
Certain names—Tenet Healthcare (THC - Get Report) and Surgical Care Affiliates (SCAI) —have been disproportionately impacted, and following further drops amid media reports around Community, both stocks present an opportune time for investors to buy, wrote Joshua Raskin of Barclays in a Friday report.
Shares of healthcare services company Tenet have retreated about 6% since last Friday as of Thursday's close, the last trading session before debt ridden Community publicly said it was working with advisers and weighing alternatives. Tenet shares are down a little more than 25% year-to-date.
While Barclays' Raskin couldn't be reached on Friday, in his note he argued that the operational underperformance seen by Community Health is a result of company specific issues: "We believe that THC has been (unfairly) most impacted by some of the CYH specific media reports," the analyst noted.
The analyst went on to say he believes Dallas-headquarted Tenet is not exploring further asset sales, having already completed divestitures in Georgia and North Carolina.
While sources of volatility in Tenet shares include its diversification into high-growth, high margin business, its levarage ratio and ability to service debt, Raskin indicated the company's strong free cash flow generation is likely to offset those concerns.
Raskin also identified Surgical Care, a Deerfield, Ill.-based outpatient surgical care company that has significantly underperformed peers this year in the facilities sector, as a buying opportunity. The company has continued to post strong earnings in the wake of the stock's decline, he noted.
With the ASC industry poised for strong growth, he wrote that Surgical is "in the position of reducing medical cost trend while improving outcomes and enhancing the consumer (not just the patient) experience."
Besides Community Health, other rural hospital operators to keep an eye on include Quorum Health (QHC - Get Report) and LifePoint Health (LPNT) , which have also gotten beaten down in the equity markets this year.
With Community Health already working with bankers to weigh possible transactions, all three may find themselves at a crossroads that could draw the attention of an activist investor, TheDeal, a sister publication of TheStreet reported Friday.
Besides trying to maneuver a transaction of some type, an investor might also be inclined to push for a change in the C-suite as Community Health as CEO Wayne Smith and CFO W. Larry Cash are 71 and 68, respectively.