Glenview Capital Adds More Shares of Health Management Associates Inc (HMA)

Editor’s Note: Related tickers: Health Management Associates Inc (NYSE:HMA), Community Health Systems (NYSE:CYH), HCA Holdings Inc (NYSE:HCA), LifePoint Hospitals, Inc. (NASDAQ:LPNT), Tenet Healthcare Corporation (NYSE:THC)

Larry Robbins’s Glenview Capital has filed a 13D regarding a position of nearly 38 million shares in Health Management Associates Inc (NYSE:HMA), a manager of hospitals primarily located in rural areas in the southern United States. Glenview has been a major shareholder in the company for some time; for example, at the beginning of this year it owned about 35 million shares according to its 13F filing, making it one of the fund’s five largest holdings by market value (find more of Glenview’s favorite stocks)– but the filing of the 13 may signify that Robbins and his team plan to push for changes in the company’s strategy or Board of Directors. We’d note that Glenview is also a major shareholder in many other hospital companies. Robbins himself is a former employee of billionaire Leon Cooperman’s Omega Advisors.

Net revenue was essentially flat last quarter compared to the first quarter of 2012, and with many of Health Management Associates Inc (NYSE:HMA)’ costs (including salaries) rising the company’s earnings finished the quarter down 39%. Adjusted earnings numbers missed analyst expectations, as had occurred in the previous few quarters.

Currently the market seems to be expecting Health Management Associates Inc (NYSE:HMA) to improve from its current conditions: at a market capitalization of $2.9 billion, the stock currently trades at 19 times its trailing earnings. This has been in part due to a 57% increase in the stock price over the last year, easily outperforming the market. Wall Street analysts are also bullish, with consensus forecasts calling for $1.02 in earnings per share in 2014; that makes for a forward earnings multiple of 11. That level is about even with where many other hospitals are trading at this time, though it is based on Health Management Associates Inc (NYSE:HMA) hitting analyst targets. Of course, this move by Glenview might suggest that the fund has ideas for increasing shareholder value independent of operations. SAC Capital Advisors, managed by billionaire Steve Cohen, was buying the stock in the fourth quarter of 2012 and closed December with a total of 3.1 million shares in its portfolio (see Cohen’s stock picks).

We would compare Health Management Associates Inc (NYSE:HMA) to Community Health Systems (NYSE:CYH), HCA Holdings Inc (NYSE:HCA), LifePoint Hospitals, Inc. (NASDAQ:LPNT), and to Tenet Healthcare Corporation (NYSE:THC). The first two of these companies are priced at roughly the same level as Health Management Associates Inc (NYSE:HMA) in terms of forward earnings estimates, with P/E multiples in the 10-11 range. Community Health Systems (NYSE:CYH) and HCA Holdings Inc (NYSE:HCA) do also get there on the basis of expectations of decent growth from the Street, even though each company reported flat revenue in its most recent quarter compared to the same period in the previous year. HCA Holdings Inc (NYSE:HCA) actually saw its net income fall by 36% over that time frame, and so as with Health Management Associates Inc (NYSE:HMA) we’d be skeptical that these two peers are actually value stocks.

LifePoint Hospitals, Inc. (NASDAQ:LPNT) grew its revenue by 9% in the first quarter of 2013 versus a year earlier, but it too experienced a sharp decline in earnings in percentage terms. With that company trading at 14 times consensus earnings for 2013, and its business not doing particularly well, we see no reason to prefer it to the other companies we’ve discussed. Tenet has more than doubled in price over the last year, bringing its forward P/E up to 14 as well. Revenue growth has been very limited, and we would be somewhat concerned that the stock is highly exposed to movements in the broader market with a beta of 2.4.

We don’t know what plans Glenview has for Health Management Associates Inc (NYSE:HMA), or even whether or not the fund actually has specific suggestions for management in mind (we would note that the stock has risen 4% on May 7^th, likely at least in part a reaction to the news). Last quarter was not a good one for the company, and with it not seeming too attractive for its industry and with its valuation dependent on a considerable improvement in its earnings we would advise against buying it at this time.

Disclosure: I own no shares of any stocks mentioned in this article.