Stock Picks and Super Tuesday: Highlights from the Nashville Health Care Council Wall Street Panel

The general outlook for healthcare remains positive…despite the election.

That was the core message presented from the stage at the 2020 Council Panel: Wall Street’s View on Prospects for the Health Care Industry, put on by the Nashville Health Care Council. Sitting on that stage were three healthcare finance wonks, plus a popular leader in the healthcare industry who took on the role of emcee.  Milton Johnson, retired chairman and CEO of HCA Healthcare moderated the discussion between:

  • Ralph Giacobbe, Director/Senior Analyst, Citigroup Global Markets
  • Frank Morgan, CFA, Managing Director, RBC Capital Markets
  • AJ Rice, Managing Director, Credit Suisse

Johnson kicked off the program, noting that it was a nice change to be on the other side of the panel (and earnings calls – that got a laugh). He started with the topic on everyone’s mind – the election. From there, the conversation coursed through healthcare transactions, consumerism, technology and the emergence of nontraditional providers. Here’s what stood out to us.

Election 2020

Rice believes that maximum volatility will occur between now and Super Tuesday. Once votes start to roll in and a running order starts to take shape among the many candidates (and, therefore, their healthcare proposals), the market will have a much better sense of the likelihood of dramatic change. To that end, Rice said, the possibility of Medicare for All is the key concern for investors and will likely be the biggest source of whatever volatility does occur over the next few weeks.

M&A

Giacobbe, Morgan and Rice generally agreed that transactions will continue in the direction they’ve been heading the past two years: lower volume, especially among traditional providers – likely because so many of the big transactions have already been done. However, Morgan highlighted a few areas to watch for transactions in 2020: managed care organizations, anything involving digital assets and companies with clinical pathway/care coordination support products. He also expects to see significant activity in the home healthcare segment.

Both Rice and Morgan expect deal volume to be higher prior to the election, especially the first half of the year, as the post-election landscape holds the possibility of tighter regulation.

Consumerism

Two notions surfaced during the discussion on consumerism in healthcare (aside from the typical themes that it’s driven by high deductible health plans, it’s an issue for voters, access to care/alternative sites of care are important, etc.)

First, Giacobbe and Morgan emphasized the need for more education around healthcare. Yes, there is opportunity for additional tools, but helping consumers understand how to find better pricing when available, how the continuum of care works and how they can engage with it is also necessary. Giacobbe also pointed to the value of integrating physicians with more transparent healthcare services. Unlike buying a car or cell phone, which is an individual decision, patients “want to shop based on what their physician wants.” In other words, the conversation around “transparency” as it relates to consumers of healthcare isn’t helpful unless it includes the role of the physician who is recommending a course of action – consumers aren’t operating in a vacuum.

Disruptors

Johnson asked the panelists about the current state of big disruptors – the usual suspects like Amazon, Walmart and Google. They were decidedly ‘meh’ about the whole thing. Morgan said that, “You certainly don’t want to dismiss anything Amazon does, but if you look at what they have done it looks a lot like what other people are already doing in managed care.”

Giacobbe noted that a lot of the early buzz around Haven Healthcare’s launch has quieted down. “They’re certainly still working toward it but […] they’re still trying to develop the tools for their existing employee base to see if it really does drive savings,” he said, adding that it’s still early. “These are relatively small examples in the grand scheme of how healthcare is delivered.”

Everyone should and will be watching the disruptors, he said, but what we’re watching so far are demos and test beds, with a lot of work remaining to determine scalability (and, therefore, the level of disruption).

Stock picks

Who doesn’t want stock picks from the experts? Saved for last, Johnson noted that sector picks is perennially the most popular topic at the NHCC Wall Street event. We’re clearly not investment/financial pros, so don’t take any of this as anything more than simply reporting what we heard.

Payer

Giacobbe: Cigna

Morgan: Cigna

Rice: United

Traditional Provider:

Morgan: HCA

Rice: HCA

Nontraditional Provider/Health Services:

Morgan: Surgery Partners

Rice: Amedisys (see below)

Rice also noted that he is more positive when it comes to hospitals than he’s been in a while – there may be some good opportunity. And with home health already a hot sector and getting hotter, companies like Amedisys are intriguing, with Encompass a potential sleeper.

David Shifrin
dshifrin@jarrardinc.com