Editor's Note: Please note that Healthcare analyst Tom Tobin will send out a full report outlining our high-conviction short thesis. In the meantime, below is a brief summary written by Hedgeye CEO Keith McCullough earlier this afternoon.
Tom Tobin recently elevated HCA to our Best Ideas Institutional Research list, on the short side. It's signaling immediate-term TRADE overbought today within our bearish intermediate-term TREND view that was summarized by Tom as follows:
"We are expecting declines in adjusted admissions the next several quarters that will drive revenue and EBITDA misses potentially into the double digits. The uncertainty in modeling a high fixed cost model such as a hospital is how punishing the incremental EBITDA declines will be as a result. On the upside, incremental admissions can carry 30% to 60% incremental EBITDA, versus the ~20% range reported. On the downside, it's hard to cut staffing fast enough, but the incremental margin depends largely on how prepared management is for the trend. Between a decline in the multiple and lower EBITDA, we think we will see a stock price in the $50s over the next 6-12 months."
Short/Sell Green,
KM