It looks like the Affordable Care Act, or ACA, is here to stay after last week’s Supreme Court ruling. Since the fate of the ACA has been questionable since it was signed into law in 2011, analysts now feel comfortable recommending stocks in the healthcare sector such as Tenet Healthcare Corp (NYSE:THC). Shares of Tenet shot up 10% following the ruling.
On June 25, the Supreme Court ruled that people in every state are eligible for subsidies to pay for healthcare. Critics of ACA argued that subsidies may only be issued to people living in the 16 states that had set up healthcare exchanges. Low-income residents of the remaining 34 states would be left without subsidies for healthcare, with the possibility of rendering them unable to pay for coverage.
The Court ruled 6-3 in favor of upholding the subsidy statute of the ACA. Chief Justice Roberts delivered the opinion using narrow language, which will make it difficult for opponents to challenge the ACA in the future. Roberts wrote, “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter.”
Now, companies in the healthcare sector are at ease knowing that ACA is safe for the foreseeable future. Analysts are taking advantage of this new certainty to rate stocks such as Tenet, a healthcare service company. Tenet has 80 hospitals throughout the United States as well as 18 short-stay surgical hospitals and over 400 outpatient centers.
In light of the ruling, Ana Gupte of Leerink Partners maintained a Market Perform rating on Tenet Healthcare and raised her price target from $56 to $60. Gupte now believes that “ACA looks poised to survive” because “any efforts to repeal must be legislative at this time, and by definition have Presidential veto power while jeopardizing campaign efforts for the GOP 2016 election.” However, the analyst remains neutral on the stock, noting, “[Tenet Healthcare] had a 5% EBITDA exposure to an adverse SCOTUS ruling and as the looming overhang from that clears, we expect THC, along with other hospitals, to re-rate.”
Ana Gupte has a 94% success rate recommending stocks with a +29% average return per recommendation.
Separately, Gary Lieberman of Wells Fargo upgraded Tenet from Market Perform to Outperform in light of the SCOTUS ruling. He believes that investors will now be encouraged to invest in healthcare stocks since this latest ruling was likely “the final challenge” to the ACA. The analyst explained, “We continue to believe that the vast majority of the strength in hospital results over the prior year is due to benefits from the ACA and not the economy. Therefore, we believe that hospital stocks will have increasingly more difficult comparables beginning in [the second quarter of 2015] and that this will continue through 2016.”
Gary Lieberman has a 57% success rate recommending stocks with a +19% average return per rating.
To see more ratings for Tenet Healthcare, visit TipRanks today.