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Hospital stocks certainly haven’t been immune to panicked sell-offs across the market in recent weeks as costs from the coronavirus pandemic – both health and economic – continue to mount. Moreover, at an industry level, investors have voiced concerns about hospitals canceling or postponing more expensive elective surgeries to cater for the influx of patients with COVID-19, questioning what impact that may have on 2020 earnings.
As the pandemic moves toward its peak, hospitals will also face increasing costs, such as hiring contract workers and adding medical equipment, to meet the growing need for intensive care facilities. Taking the glass-half-full approach, several leading players in the group are trading well below their long-term earnings multiples and look on track to deliver revenue growth this year despite the tough challenges that lie ahead.
Let’s take a more in-depth look at three well-known hospital stocks and identify important technical levels to watch in upcoming trading sessions.
Community Health Systems, Inc. (CYH)
With a market capitalization of $309.96 million, Community Health Systems, Inc. (CYH) owns or leases over 100 general acute-care hospitals located in regional and urban markets. The Franklin, Tennessee-based company also provides management and consulting services to independent hospitals. At its latest earning call, the firms said that it expects 2020 revenues to come in between $12.4 billion and $12.8 billion. Community Health Systems stock is trading down 9.31% on the year but has outperformed the medical care facilities industry average by 26.41% over the same period as of March 23, 2020.
Since setting a 52-week high in late February, the firm’s share price has fallen a staggering 65%; however, bulls have so far successfully defended crucial horizontal trendline support at $2.50. Swing traders should watch this level closely Monday to see how the stock responds and consider taking a long position if price holds above the March 18 low at $2.25. In terms of taking profits, think about exiting near $4.25, where the shares may find selling pressure from the 38.2% Fibonacci retracement level and 50-day simple moving average (SMA).
HCA Healthcare, Inc. (HCA)
HCA Healthcare, Inc. (HCA) owns and operates 179 hospitals and 120 outpatient surgery centers located across 21 states. The $26.57 billion hospital chain plans to separate patients with suspected respiratory symptoms away from other patients to help contain the virus’ spread within its system. The company forecasts 2020 revenue to come in between $53.5 billion and $55.5 billion, representing top-line growth of 4% to 8% compared to reported 2019 revenues. From a valuation standpoint, the company is trading at about half its five-year projected earnings multiple. As of March 23, 2020, HCA Healthcare stock offers a 2.52% dividend yield and has fallen 46.60% year to date.
Although losses have accelerated in recent sessions, the stock managed to close Friday above $73.50 – a vital multi-year support level. The quick reversal above this area indicates a possible head-fake move to trap traders who had taken short positions amid last Tuesday’s panic sell-off, providing price holds above that support this week. Those who buy should look for a retracement back to around $100, where the stock encounters resistance from a long-term horizontal line.
Tenet Healthcare Corporation (THC)
Tenet Healthcare Corporation (THC) operates 68 general hospitals that provide acute care services and respiratory therapy services, along with intensive and critical care. The health care facilities firm has taken proactive measures, such as determining the severity of each potential COVID-19 patient’s condition, to help optimize treatment plans and effectively allocate resources in readiness for the outbreak’s peak. The company expects to generate 2020 net revenues of between $19.1 billion and $19.5 billion, up from $18.5 billion last year. As of March 23, 2020, Tenet Healthcare stock has a market value of $1.34 billion and is trading down 65.87% so far this year. It has a forward earnings multiple of about 4, well below its five-year average multiple of 14.
The stock’s share price closed Friday near three-year chart support at $13, showing the importance of this significant technical level. Given that the relative strength index (RSI) sits deep in oversold territory below 30, the stock may be in for a bounce this week as bargain hunters look for quality industry names at discounted prices. Those who execute a trade should eye key resistance areas at $18 and $26.50 as possible exit points to book profits.
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