Investors Bet on Hospital Stocks Ahead of a Possible Democratic Win in Congress

what happened

Investors have found their favorite election wager in hospital operators, the Wall Street Journal reports. Its columnist David Wainer recalls that when the opposition last won the House on a pledge to roll back a president's healthcare agenda, the outcome did not match expectations. Prediction markets give Democrats heavy odds of retaking the House on Tuesday, while the Senate remains uncertain. Since June 1, Tenet Healthcare is up 61%, HCA Healthcare has gained 28% and Universal Health Services has added 22%, while the S&P 500 has barely moved.

The paper says the rally is not driven only by election bets. Tenet's gains rest largely on strong earnings from its surgery-center business, while HCA and UHS have climbed despite weak results and HCA's guidance for flat earnings next year. Raymond James analyst Chris Meekins argues that even a Democratic win would not undo the main reforms, since repealing them would need President Trump's signature, which he is unlikely to give. Bernstein's Lance Wilkes, the WSJ notes, sees potential relief for hospitals already reflected in their valuations, and thinks Medicaid insurers such as Centene and Molina could benefit more from a compromise.

why it matters

The story matters for investors in the healthcare sector and for anyone tracking political risk in the US. Hospital valuations are already above their five-year averages, so analysts say little room is left for disappointment. Congressional decisions on Medicaid funding and ACA subsidies could significantly change hospital and insurer profits, so share moves should be read against the progress of talks in Washington.

market impact

US hospital operators: bets on a shift in Congress support shares, but high valuations raise the risk of disappointment

• ↔HCA Healthcare mixed — hopes for Democratic help support the shares, but valuation is already high and relief may not come
• ↔Tenet Healthcare mixed — gains rest on surgery-center profit, yet the policy bet remains uncertain
• ↔Centene mixed — a Medicaid compromise could help the insurer, but shrinking enrollment weighs on revenue

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