Health care service providers likely saw weak demand in the final quarter of 2012, but that may have limited impact on their shares. Investors are focused on longer-term gains from the national health care overhaul, according to a Jefferies analyst.
Pharmacy benefits managers, doctor groups, hospital operators and other businesses that provide health care stand to benefit when the overhaul expands starting next year, analyst Brian Tanquilut said in a Monday research note.
In 2014 the overhaul will begin offering income-based subsidies that help people buy health insurance, and it will expand the state and federally funded Medicaid program for poor and disabled people in some states. Reducing the number of uninsured individuals will increase reimbursement prospects for many health care companies.
Many of them will report fourth-quarter results this week, and Tanquilut expects soft trends for the sector, especially for companies hurt when Superstorm Sandy swept up the East Coast in October and forced temporary shutdowns. But he said investors appear to be less near-sighted than they have been historically.
"We believe that investors are now positioning for 2014 ... and as a result, are looking well beyond near-term factors such as (fourth-quarter) earnings results and even current year outlooks," the analyst wrote.
Top picks in his health care services sector — a category that excludes insurers — are pharmacy benefits manager Catamaran Corp., national physician group Mednax Inc. and Acadia Healthcare Company Inc., which provides behavioral health services.
The analyst also said in a separate note that he expects hospital operators to benefit the most from expanded health insurance coverage. He considers HCA Holdings Inc. the bellwether for hospital stocks.
Shares of Catamaran fell 53 cents to $52.97 in Monday afternoon trading amid a broader market decline. Acadia fell 23 cents to $25.66, Mednax dropped $1.60 to $84.54 and HCA dropped 41 cents to $37.81.