(By Balaseshan) UBS Securities analyst A.J. Rice initiated coverage of Vanguard Health Systems Inc. (NYSE:VHS) with a "Neutral" rating and $9 price target, saying the company has expanded since 1997 by acquiring entire hospital systems generally in large urban markets.
Rice said VHS has demonstrated a consistent ability to leverage its experience, access to capital, transformative clinical and business approaches and other capabilities to enhance the profitability of the properties it acquires.
Rice said about 50% of the company's current revenue base has been added to the portfolio since August 2010, and thus much of the upside from these acquisitions is yet to be realized.
The analyst said Vanguard's management has extensive operating experience in managing both private and publicly traded hospital companies through periods of rapid growth and consolidation. In fact, many of Vanguard senior executives, including CEO Charles Martin, were associated with OrNda HealthCorp, a public hospital company from 1992 through 1997.
Rice said under this management team, OrNda revenues quadrupled and EBITDA margin improved 400 basis points. After having grown from 11 hospitals to 49 over the period, OrNda was sold to Tenet Healthcare Corp. (NYSE:THC) for $1.7 billion in 1997.
The analyst said Vanguard's operations are more concentrated than those of other public hospital companies, potentially adding volatility to near-term results. About 34% of revenues are currently being generated by VHS hospitals in Detroit, Michigan.
The brokerage established its 2012 EPS estimate of $0.75 and its 2013 estimate of $0.83.
VHS is trading down 0.97% at $8.19 on Wednesday.