Core Insights - The healthcare sector is facing regulatory shifts and economic pressures, impacting hospitals' operations and financial performance [1] - Bank of America (BofA) Securities expresses caution regarding hospitals due to moderating fundamentals and a restrictive policy environment, predicting a 2-4% EBITDA headwind to growth annually for the next five years [2] - BofA highlights that while some new state-directed payment programs may be approved, the quality of EBITDA growth is expected to be low due to future cuts [3] Company-Specific Analysis - Universal Health Services Inc. (UHS) and Ardent Health Inc. (ARDT) are anticipated to be most adversely affected, while HCA Healthcare Inc. (HCA) is positioned to better withstand these headwinds [4] - The demand for hospital services is stabilizing, but policy changes are expected to create a 90 basis points headwind in 2026, likely resulting in volumes falling below long-term growth expectations [5] - The fourth quarter of 2025 may see increased volume due to demand pull-forward ahead of coverage changes, creating a challenging comparison for 2026 [6] Investment Preferences - BofA prefers post-acute care companies, with Encompass Health Corporation (EHC) identified as a top pick due to its minimal exposure to upcoming cuts [6][7] - Tenet Healthcare Corporation (THC) is highlighted as a top pick among hospitals, benefiting from its ambulatory surgery centers' exposure, which insulates it from the impacts of the Reconciliation Bill [8] - Brookdale Senior Living Inc. (BKD) has been upgraded to Buy from Underperform, reflecting improved free cash flow and favorable positioning in the aging demographics sector [9][10]
Hospitals Face Profit Squeeze As Policy Risks Grow: Analyst