It’s been a rough year for these stocks and well…stocks in general. From this website’s portfolio of healthcare service companies, we compiled the top 10 worst performing stocks, and, despite the broader market selloff, there are some pretty decent insights to pick up from the data.
Dialysis and Diagnostics providers were among the worst healthcare performers in 2018, with companies like Fresenius, LabCorp, and Quest revising 2019 guidance downward, expecting softer growth over the next year. The full list is below; thanks for reading.
1. Diversicare Healthcare Services ($DVCR)
52 Week return: -76.7%
[finviz ticker=DVCR]
Skilled nursing in general has been getting destroyed, with reimbursement pressures and mounting costs over the years. The industry is a tough one to be in right now – Skilled Nursing News reports that median operating margins for SNFs across the country are 0. Zero. Zilch. That’s right.
In the current adverse operational environment, Diversicare is completely riddled with debt and recently sold some of its facilities to pay down its lines of credit, making it the worst healthcare service stock (that we track, anyway) for 2018. We have a winner!
2. Quorum Health Corporation ($QHC)
52 Week return: -47.7%
[finviz ticker=QHC]
As a spin off from Community Health Systems, Quorum hasn’t fared well in 2018. The hospital operator is selling off hospitals to reduce leverage, and implemented several cost-saving initiatives in its most recent quarterly report.
3. Fresenius Medical Care ($FMS)
52 Week return: -38.9%
[finviz ticker=FMS]
Investors sharply sold off Fresenius in 2018 for a few reasons – for one, the dialysis industry has been under regulatory scrutiny in California, where the state has attempted multiple times to pass legislation capping dialysis prices.
Although the bill was vetoed, the potential for another bill to be introduced and passed, and then potentially implemented nationwide from there, looms as an existential threat to the dialysis industry.
In addition to regulatory challenges, the company softened its guidance for 2019 and 2020, leading to a swift sell-off earlier this month.
4. MedNax, Inc. ($MD)
52 Week return: -38.5%
[finviz ticker=MD]
MedNax appears to have fallen victim to, simply put, the broader market sell-off as of late. The physician services company did lose a major contract involving anesthesiologist providers in Charlotte, and physician acquisition strategy and cost controls have eaten into margins, but there’s not really anything major to point toward to justify the poor return for the company this year.
MedNax’s valuation appears relatively low, at 8.7x trailing P/E. I wouldn’t be surprised to see it considered as a potential take-over target.
5. American Renal Associates ($ARA)
52 Week return: 34.3%
[finviz ticker=ARA]
As mentioned, the dialysis industry as a whole hasn’t been too hot, and American Renal is no exception. Similar to other companies on this list, the company is highly levered and has been beaten down by the broader market / rising interest rate environment.
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6. DaVita HealthCare Partners ($DVA)
52 Week return: -29.7%
[finviz ticker=DVA]
Surprise! Another dialysis company makes the list. DaVita is much larger than its counterparts, much more heavily affected by any potential dialysis legislation, and was in the news recently for lowering the sale price of DaVita Medical Group (which is being sold to United Health) by a smooth $600 million.
They claim the drop will allow the FTC to approve the deal much more quickly, but there also was mention of deteriorated operational performance, which led to the lower purchase price.
7. Community Health Systems ($CYH)
52 Week return: -26.8%
[finviz ticker=CYH]
Community Health Systems underwent a divesting strategy in 2018 order to pay down its debt and stay afloat, selling several under-performing hospitals in many markets over the span of the year.
8. Laboratory Corporation of America ($LH)
52 Week return: -22.5%
[finviz ticker=LH]
As mentioned, LabCorp isn’t expecting big things for 2019, citing “slower growth in referred direct-to-consumer genetic testing, lower referral volume from hospitals and health systems, volume declines from certain managed care plans that will no longer be exclusive to LabCorp in 2019, and adverse weather.”
The company hopes to make up for these headwinds by implementing cost-saving initiatives, but diagnostic companies may continue to see volume declines as hospitals and other providers keep these lucrative operations in house for financial purposes.
9. Acadia Healthcare ($ACHC)
52 Week return: -20.2%
[finviz ticker=ACHC]
Shares of Acadia Healthcare have been toyed with this year, tugged in multiple directions. Rumors of a buyout by KKR kept the stock elevated for most of the year, until doubts began to spread about the deal.
In other news, the post-acute company has been under fire for the alleged mis-management at some facilities in Britain (which make up about a third of Acadia’s revenues), including some allegation of abuse at said facilities. Most recently, Acadia ousted its CEO, which is never a good look.
10. Quest Diagnostics ($DGX)
52 Week return: -17.1%
[finviz ticker=DGX]
Not to be outdone by LabCorp, Quest updated its guidance to a softer outlook for 2019, which was a surprising development given its new deal with United Health.
The company still plans to deliver growth between 4 and 6%, but the guidance cut signals a weakening volume demand for diagnostic testing in the industry as a whole.
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