Deutsche Bank: Expects the U.S. will not cut Medicaid, recommends bottom-fishing in the U.S. healthcare facilities sector
Deutsche Bank advises investors to buy U.S.-listed hospital stocks, expecting that the U.S. Congress will not cut Medicaid. Analyst Pito Chickering pointed out that hospital stocks have been sold off due to unclear budget policies, but as policies become clearer, hospital stocks are expected to rebound. Although hospitals face pressures from rising costs and labor shortages, and Medicaid is a major source of income, there is no senator supporting cuts to Medicaid benefits, making it unlikely that the situation will change in the future
According to the Zhitong Finance APP, Deutsche Bank recommends buying shares of listed hospitals for investors involved in transactions related to the U.S. Congress budget for Medicaid; once the budget policy becomes clearer, hospital stocks are expected to rebound, as no senator has expressed support for cutting Medicaid benefits.
The sector index has fallen about 19% from its peak last September. The stock prices of HCA Healthcare Inc. (HCA.US), Tenet Healthcare Corp. (THC.US), and Universal Health Services Inc. (UHS.US) have been under pressure as lawmakers consider significant spending cuts, including reductions to Medicaid and other safety net programs that cover low-income Americans. According to analyst Pito Chickering, hospital stocks are likely to rebound from the sell-off once the budget policy becomes clearer.
In a research report on Tuesday, he wrote: "These stocks are essentially dead money, trading within a narrow range. Over the next few months, we expect the federal budget to become increasingly clear, which will reassure investors that the worst-case scenario for the Medicaid program will not occur."
Since the pandemic, all hospitals have struggled under the pressures of rising costs and labor shortages, leading to the closure of many nonprofit organizations. The Medicaid program is a major source of revenue for hospitals, and the prospect of cuts to this program further pressures the sector. However, Chickering believes the sharp decline in hospital stocks is unwarranted, as no senator has expressed support for cutting Medicaid benefits, and this situation is unlikely to change with the midterm elections approaching in 2026.
Nevertheless, he pointed out that due to the low or negative profit margins of many nonprofit organizations, "the elimination of the Medicaid program could put a significant portion of U.S. hospitals in jeopardy." Ultimately, while Chickering expects the current policy baseline to be "the path of least resistance and the most likely outcome."