Wells Fargo on Thursday upgraded HCA Healthcare (NYSE:HCA) and Tenet Healthcare (NYSE:THC), noting that policy risks related to the hospital sector are receding with the House passage of budget reconciliation legislation.
The upgrades came after the House of Representatives voted 215-214 last week to narrowly advance the legislation dubbed "One Big Beautiful Bill," which indicated significant cuts to Medicaid, a healthcare program jointly funded by states and the U.S. government.
“While the legislation will face changes in the Senate and needs to be passed again by the House, we believe healthcare spending cuts are unlikely to worsen and could potentially moderate,” Wells Fargo analyst Stephen Baxter wrote.
The analyst cited coverage impacts as a negative but manageable headwind for the hospital sector, arguing that “negative financial implications from the proposed policies are less severe than we anticipated prior to the release of the initial legislation.”
The analyst noted Universal Health Services (UHS) and Community Health Systems (CYH) as most exposed to the Medicaid proposals and HCA Healthcare (NYSE:HCA) and Tenet Healthcare (NYSE:THC) as least exposed due to their business/payer mix and stronger margins.
Baxter upgraded HCA Healthcare (NYSE:HCA) to Equal Weight from Overweight and raised its price target to $385 from $320 per share. He also upgraded Tenet Healthcare (NYSE:THC) to Overweight from Equal Weight, lifting its per-share target to $195 from $150.
With an Underweight rating, the analyst raised his price target on Community Health Systems (CYH) to $3.50 from $2.00 per share, and with an Overweight rating, he kept his target on Universal Health Services (UHS) unchanged at $225 per share.
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