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Hospital shares swoon as HCA earnings projection disappoints

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(Bloomberg) — Hospital chains’ shares dropped after industry leader HCA Holdings Inc. (NYSE:HCA) released preliminary third-quarter results that missed analysts’ estimates.

HCA said it expects to report net income of $1.17 a share, while the average estimate of analysts surveyed by Bloomberg was $1.22 a share. Shares of the Nashville, Tenn.-based company fell 7.8 percent to $70.09 at 9:48 a.m. Tenet Healthcare Corp. (NYSE:THC) and Community Health Systems Inc. (NYSE:CYH) also tumbled.

While inpatient and emergency room admissions rose, the proportion of uninsured patients and labor costs also increased, HCA said. The company also admitted a lower rate of privately insured patients who provide its strongest revenue, said Sheryl Skolnick, an analyst with Mizuho Securities USA Inc.

“Losing those cases for managed-care-centric HCA really hurts margins,” Skolnick said Wednesday in a note to clients. She reduced her price target to $86 from $103, maintaining a buy rating.

Uninsured patients

The influx of uninsured patients — 8 percent of admissions at hospitals open for at least year compared with 7.3 percent a year earlier — at the biggest publicly traded U.S. hospital chain bodes poorly for the industry, said Ana Gupte, an analyst with Leerink Partners.

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“This disappointing report from the hospital bellwether HCA confirms worst investor fears of worsening bad debt and a tapering off of the volume swell from the Affordable Care Act,” she said Wednesday in a note. The release “further colors our negative view of the acute inpatient sector.”

Jefferies analyst Brian Tanquilut lowered his price target on HCA to $88 from $112, while UBS’s A.J. Rice cut his price target to $88 from $106. Both advise buying the shares.

Full-year 2015 adjusted earnings will be $5.20 to $5.25 a share, HCA said, narrowing its forecast on Aug. 8 of $4.90 to $5.30 a share. The company is scheduled to release full third-quarter results Oct. 27.

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