Tuesday, Credit Suisse upgraded Health Management Associates Inc. (HMA) shares to Outperform from Neutral and increased its price target to $9 from $7.
Analyst Giacobbe believes the recent pullback provides a buying opportunity as mgmt continues to build on operational improvements. While bad debt remains a concern, strong volume and acquisitions should boost top-line and more than offset bad debt pressures. Moreover, attractive 7% FCF yield should help HMA continue to manage the capital structure.
The company's CEO Gary Newsome took the helm just over a year ago and the analyst has already seen operational improvements take hold, particularly on the volume side. The analyst believes he is still in the early stages of a turnaround and performance thus far gives him confidence in management's ability drive further progress.
HMA posted the best volume stats vs. peers over the last two quarters. While certain initiatives helped drive those trends off a depressed base, the analyst expects strong volume trends to continue as the company takes share from struggling NFPs, and as doc recruiting efforts materialize. The analyst also expects deals to provide a boost to top-line and help buffer the impact of higher bad debt.
The analyst believes the recent acquisition of Sparks could add $0.02-$0.03 to EPS as HMA takes over a dominant market share position, and has the ability to drive early savings in the SWB and supply cost lines.
HMA recently guided bad debt as a percentage of revenue of 12%-13% for 2010. The analyst views the midpoint as somewhat aggressive after seeing bad debt of 12.4% in 2009. Importantly, the analyst's model assumes the high-end of the range, but he believes the Sparks acquisition coupled with other expense levers should offset higher bad debt and allow HMA to reach its EBITDA target.
The analyst acknowledges that the recent pullback reflects the uncertainty/end of hc reform. However, the analyst would argue that valuation is still below levels pre the 2008 market collapse when there was no reform expectation, volumes were sluggish, bad debt was rising, and operations were underperforming. The analyst believes the recent improvement in operating performance and resiliency of the model during the economic downturn warrants valuation at least in-line with historical averages.
Currently, HMA is up $0.38 or 5.62% and trading at $7.14.
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June 12, 2026 17:14 ET Major central bank action was the focus this week in economic news. The European Central Bank became the first major central bank to move in response to the rising inflationary pressures in the backdrop of the conflict in the Middle East. In North America, the U.S. inflation and trade data as well as Canada’s central bank decision gained attention. The Chinese trade data was the main news in Asia.