Here's Why You Should Steer Clear of LifePoint (LPNT) Stock

LifePoint Health Inc.’s LPNT guidance cut for third-quarter 2017 earnings and weak industry trends owing to softness in patient admission volumes have been dampening market sentiments, of late.

This Zacks Rank #5 (Strong Sell) company has also witnessed estimates moving south over the last 60 days. The Zacks Consensus Estimate has moved down 9.6% to $3.67 for 2017 and 9.2% to $4.04 for 2018.

LifePoint Health’s earnings surprise history is also not impressive. The company has an average negative surprise of 0.33%.

Also, so far this year, the stock has been down 17.7% compared with the industry’s growth of 3.5%.

 

What’s Pulling Down the Stock?

Lackluster Outlook: Investors’ pessimism about LifePoint stemmed from the decline in its 2017 earnings guidance, following the third-quarter results. It now expects net revenues in the range of $6.335-$6.385 billion (versus the prior projection of $6.425-$6.5 billion), adjusted EBIDTA in the band of $740-$760 million (as against the previous estimate of $775-$795 million), and adjusted EPS in the $3.48-$3.78 range (as against the previous guidance of $3.92-$4.20). Equivalent admissions are expected to decline 1.7-2.0% (versus the prior estimate of a decline of 0.5% to flat).

The guidance reduction took into account a challenging volume environment and weak revenues from hospitals acquired in 2016. The tightening of guidance reflects a challenging operating environment for the company.

Weak Patient Admissions: The company has been suffering from low-patient admissions as patients are increasingly choosing to stay away from hospitals due to high out-of-pocket (which shift the initial costs to patients) costs. In addition, a pullback of insurers from public exchanges has increased the uninsured rate, which, in turn, is hurting the company.  

Same-hospital equivalent admissions declined 1.4% in the first nine months of 2017 due to decreases in admissions, surgical volumes and emergency-room visits. We don’t expect any improvement on this front in the coming quarters.

Expenses Rise Higher Than Revenues: Life Point’s expenses have flared up at a higher rate than revenues during the 2006-2016 period. In 2016, expenses escalated 25% against revenue growth of 22%. The company, however, witnessed 0.2% increase in adjusted operating expenses in the first nine months of 2017, lower than revenue growth of 0.9%. The company is experiencing an increase in professional fees on account of continued shortage of physicians and elevated interest expenses due to rising debt.

Also, higher depreciation and amortization, increase in supplies expense, and higher salaries and expenses associated with recent acquisitions will lead to an increase in total expenses in the coming quarters. Increase in cost at a rate higher than revenue growth will affect the company’s bottom line, thus eroding its profitability.

Dwindling Cash Flows: Cash from operations plunged 31% in 2016 and 11% in the first nine months of 2017 (as of Sep 30, 2017). This decrease in cash flow might impede the company’s ability to fund acquisitions and buy back shares.

Key Picks

While LifePoint doesn’t seem to be a good bet at present, investors may consider better-ranked stocks such as PRA Health Sciences, Inc. PRAH, CareDx, Inc. CDNA and Diplomat Pharmacy, Inc. DPLO. While PRA Health sports a Zacks Rank of 1 (Strong Buy), CareDx and Diplomat Pharmacy carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PRA Health operates as a global contract research organization, providing outsourced clinical development services to the biotechnology and pharmaceutical industries. The stock surpassed estimates in each of the preceding four quarter by 6.9%.

CareDx develops, markets and delivers diagnostic surveillance solutions for heart-transplant recipients. The company beat the Zacks Consensus Estimate in the last reported quarter by 11.8%.

Diplomat Pharmacy operates as an independent specialty pharmacy in the United States. It aids in the dispensing, delivery, dosing and reimbursement of clinically intensive and specialty drugs. The company surpassed estimates in three of the trailing four quarter by 27.5%.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
LifePoint Health, Inc. (LPNT) : Free Stock Analysis Report
 
Diplomat Pharmacy, Inc. (DPLO) : Free Stock Analysis Report
 
PRA Health Sciences, Inc. (PRAH) : Free Stock Analysis Report
 
CareDx, Inc. (CDNA) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research