Why Vanguard Health Systems Shares Need a Medic

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Vanguard Health Systems , an operator of acute-care facilities, outpatient rehabilitation centers, and hospitals in the U.S., could use a medic of its own today, falling as much as 12% after reporting disappointing third-quarter earnings results.

So what: For the quarter, Vanguard Health Systems reported a 5% drop in revenue, to $1.5 billion, and a profit of $0.26 per share. The company's profit actually topped estimates by $0.02; however, revenue fell about $100 million shy of estimates. Vanguard noted that total patient discharges decreased by 3.2%, and revenue per patient discharge were flat relative to the year-ago period. Looking ahead, Vanguard lowered and tightened its full-year EPS range to $0.71-$0.78, from a previous forecast of $0.74-$0.93. The new range is still very much in line with the current consensus estimate of $0.76, but the projected reduction certainly wasn't received well by investors.


Now what: Vanguard Health Systems certainly isn't my favorite name in the hospital sector, but the entire sector should have catalysts set to boost their bottom line beginning early next year. The Patient Protection and Affordable Care Act's individual mandate will require everyone to carry health insurance, and should help eliminate a good chunk of Vanguard's doubtful account provisions, which totaled 10.1% of total revenue last quarter, up from 8.5% in the year-ago period. Also, fears that Medicare reimbursement rates would fall have been dashed in recent days, with the Centers for Medicare and Medicaid Services noting a 0.8% increase in Medicare reimbursements to acute-care facilities. With some of the uncertainty surrounding the sector set to take a back seat, I believe that hospital companies should be closely monitored for attractive entry points.

Craving more input? Start by adding Vanguard Health Systems to your free and personalized Watchlist, so you can keep up on the latest news with the company.

While you can certainly make huge gains in hospital stocks like Vanguard Health Systems, the best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report, "3 Stocks That Will Help You Retire Rich," names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

The article Why Vanguard Health Systems Shares Need a Medic originally appeared on Fool.com.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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