The rapid spread of the coronavirus Delta variant has caused a resurgence of COVID-19 cases across several parts of the world. Five U.S. states recently broke the record for the average number of daily new COVID-19 cases in the U.S. So, hospitals are again dealing with a surge in demand for their services.

Investors’ interest in the hospital stocks is evidenced by the Health Care Select Sector SPDR Fund’s (XLV) 5.7% returns over the past month versus the SPDR S&P 500 ETF Trust’s (SPY) 2.9% gains. Furthermore, a recent study showed that breakthrough COVID-19 inflections after vaccination could cause long-haul symptoms. So, even though 73% of U.S. adults have received at least one dose of the vaccine, the need for hospital services could remain high.

Given this backdrop, we think it is wise to bet on fundamentally strong hospital stocks Tenet Healthcare Corporation (THC), Encompass Health Corporation (EHC), and Select Medical Holdings Corporation (SEM). They are expected to continue gaining in price in the coming months as COVID-19 cases continue to climb.

Click here to checkout our Healthcare Sector Report for 2021

Tenet Healthcare Corporation (THC)

Diversified healthcare services company THC in Dallas, Tex., operates 60 hospitals and roughly 460 other healthcare facilities, including surgical hospitals, ambulatory surgery centers, and other outpatient facilities. Its segments include Hospital Operations and Other; Ambulatory Care; and Conifer.

THC announced on August 2 that it had sold five of its hospitals and related operations in the Miami-Dade and Southern Broward counties to Steward Health Care for roughly $1.10 billion. Ron A. Rittenmeyer, THC’s CEO, said, “We are pleased they will become part of Steward Health Care as the Company’s first South Florida network, and we are confident they will continue to thrive.”

THC’s revenue for the second quarter, ended June 30, 2021, was  $4.95 billion, versus $3.65 billion in the year-ago period. The company’s operating income increased 38.6% year-over-year to $1.11 billion. While its net income increased 52.1% year-over-year to $257 million, its adjusted EPS came in at $1.59, representing a 26.2% year-over-year rise.

Analysts expect THC’s revenue to increase 11.4% year-over-year to $19.64 billion in its fiscal year 2021. The company’s EPS is expected to grow 48.4% year-over-year to $0.95 for the quarter ending September 30, 2021. In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 129.9% in price to close Friday’s trading session at $72.63.

THC’s strong fundamentals are reflected in its POWR Ratings. THC has an overall POWR Rating of B, which indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Also, the stock has an A grade for Growth, and a B grade for Value. Within the A-rated Medical-Hospitals industry, it is ranked #6 of 11 stocks. Click here to see the additional POWR Ratings for Momentum, Sentiment, Stability, and Quality for THC.

Encompass Health Corporation (EHC)

EHC is a leading provider of inpatient rehabilitation and home-based care. It is also one of the largest Medicare-certified skilled home health services providers. The Birmingham, Ala.-based company operates roughly 140 hospitals, 250 home health locations, and 93 hospice locations in 42 states and Puerto Rico.

On August 3, EHC announced the opening of Encompass Health Rehabilitation Hospital of Shreveport in Louisiana and Encompass Health Rehabilitation Hospital of Greenville in South Carolina. These openings are expected to further strengthen the company’s reach in the rehabilitative care space.

For the second quarter, ended June 30, 2021, EHC’s net operating revenues increased 19.9% year-over-year to $1.29 billion. The company’s net and comprehensible income increased 194% year-over-year to $142 million. Its adjusted EPS came in at $1.17, up 277.4% year-over-year. And its  adjusted FCF for the quarter increased 22.2% year-over-year to $205.60 million.

EHC’s revenue and EPS are expected to increase 12% and 35.9%, respectively,  year-over-year to $1.32 billion and $1.06 for the current quarter, ending September 30, 2021. It has surpassed the Street’s EPS estimates in each  of the trailing four quarters. And the  stock has gained 26% in price over the past year to close Friday’s trading session at $77.74.

EHC’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. In addition, it has a B grade for Growth, Stability, and Sentiment.

In addition to the POWR Rating grades we’ve just highlighted, one can see EHC’s ratings for Value, Momentum, and Quality here. EHC is ranked #4 of 11 stocks in the Medical-Hospitals industry.

Select Medical Holdings Corporation (SEM)

SEM is one of the largest post-acute care providers. It operates 99 critical illness recovery hospitals in 28 states. The Mechanicsburg, Pa., company's segments include specialty hospitals; outpatient rehabilitation; Concentra; and Others.

SEM announced on June 21 that it has entered  a series of agreements in which  it will operate seven new critical illness recovery hospitals, licensed as long-term acute care, and eight new outpatient clinics through acquisitions and new joint venture partnerships. These moves are expected to help it deliver better post-acute care solutions.

The company’s revenue for the second quarter, ended June 30, 2021, came in at $1.56 billion, representing a 26.9% year-over-year rise. SEM’s income from operations increased 137.6% year-over-year to $283.97 million. Its net income increased 190.7% year-over-year to $196.21 million, while its EPS came in at $1.22, up 212.8% year-over-year.

For its fiscal year 2021, SEM’s revenue is expected to increase 8.3% year-over-year to $5.99 billion. The company’s EPS is expected to come in at $3.03 in the current year, representing a 60.3% year-over-year rise. It has surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has returned 31.4% over the past nine months to close Friday’s trading session at $32.66.

It’s no surprise that SEM has an overall B rating, which equates to a Buy in our POWR Rating system. Also, the stock has a B grade for Value and Sentiment.

Click here to see the additional POWR Ratings for SEM (Growth, Stability, Momentum, and Quality). Again, SEM is ranked #3 in the Medical-Hospitals industry.

Click here to checkout our Healthcare Sector Report for 2021

THC shares were trading at $72.44 per share on Monday morning, down $0.19 (-0.26%). Year-to-date, THC has gained 81.42%, versus a 20.36% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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