Here's Why Investors Should Offload LifePoint (LPNT) Stock

In the Q2 earnings season, the Hospital industry, part of the Healthcare sector gave an overall weak performance with softness in patient volumes, which adversely impacted revenues. Also, increased expenses hurt the bottom line and margins. Significant regulatory uncertainty is anticipated with ongoing efforts to repeal and replace Obamacare. Therefore stocks in this space have lost their sheen.

One such stock is LifePoint Health Inc. (NASDAQ:LPNT) that has been witnessing downward estimate revisions, reflecting analysts’ pessimism about its prospects. Over the last 30 days, the Zacks Consensus Estimate for 2017 and 2018 moved down 2.9% and 2.8%, respectively.

Further, shares of this Zacks Rank #4 (Sell) company have lost around 11.1% of its value in the last six months, in line with the industry.'s decline.

Notably, LifePoint is also suffering from a number of other issues which makes it an underperformer.

Why LifePoint is a Sell

Tightening of Guidance: Following second-quarter results, the company trimmed its 2017 guidance. It now expects net revenues of $6.425 billion to $6.5 billion (versus the old estimate of $6.5 billion to $6.6 billion); adjusted EBIDTA of $775 million to $795 million (previous range was $785 million to $815 million); adjusted EPS of $3.92 to $4.20 (previous guidance was $4.05 to $4.34). Equivalent admissions are expected to decline 0.5% or remain unchanged. The guidance reduction accounted for a challenging volume environment and weak revenue growth.

Expenses Rising More Than Revenues: Life Point’s expenses have increased at a rate higher than the revenue growth rate from 2006-2016. The company, however, witnessed a 1.5% decline in total operating expenses in the first half of 2017.

The company is experiencing an increase in professional fees and higher interest expenses due to increasing debt. It is also faced with higher depreciation and amortization as a result of an increase in spending on information systems and increase in supplies expenses due to recent acquisitions. These costs will lead to an increase in total expenses in the coming quarters.

Increasing Bad Debts: To provide for accounts receivable that could become uncollectible in the future, the company has established a provision for doubtful accounts. Its provision for doubtful accounts has been increasing for the past many years and the same was seen in the first half of 2017. The company has long struggled to collect unpaid bills as any increase in uncollectible bills will hit its bottom line.

Overvalued: LifePoint’s valuation looks stretched at the current level. Looking at the company’s price-to-earnings ratio, investors may not want to pay any further premium. The company currently has a one-year forward P/E ratio of 14.43, which is higher than the one-year forward P/E ratio of 13.75 for the industry.

Stocks to Consider

Aetna Inc. (NYSE:AET) , one of the largest health benefits companies, beat estimates in each of the last four quarters with an average positive surprise of 19%. It carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Anthem Inc. (NYSE:ANTM) is a health care company, which provides medical products, through its subsidiaries. It surpassed estimates in three of the last four quarters with an average positive surprise of 8.6%. It carries a Zacks Rank #2.

WellCare Health Plans, Inc. (NYSE:WCG) provides managed care services targeted exclusively at government-sponsored healthcare programs. It beat estimates in each of the last four quarters with an average positive surprise of 47.4%. It carries a Zacks Rank #2.

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