Yesterday HCA posted second-quarter EPS of $0.43, down -35% from the same period a year ago, and badly missing forecast earnings of $0.59. Revenue rose, but still missed estimates. The report weighed down other stocks in the health care sector, included Tenet Healthcare Corp. (NYSE: THC), Health Management Associates Inc. (NYSE: HMA), Universal Health Services, Inc. (NYSE: UHS), LifePoint Hospitals, Inc. (NASDAQ: LPNT), and Community Health Systems Inc. (NYSE: CYH).

The HCA IPO came after it was quite clear that the brunt of the health care reforms passed into law last year would fall on insurers, not providers. But the fee-for-service system, on which hospital profits are based, are going to be revamped as well over the next several years. Because HCA employs relatively few physicians, it will have to begin hiring doctors in order to take advantage of some of the reform act’s new payment structure.

The company’s structural inadequacies were known and even referred to in the IPO prospectus. Perhaps they were not sufficiently considered by investors, but that’s a long term story.

HCA’s earnings report does note a drop in the complex surgeries that the company has relied on to boost revenues and profits. Instead, hospitals treated less severe cases that are not as costly.

The company also lowered its forecast for growth-adjusted earnings to a range of 3% to 5%, down from a prior estimate of mid-single-digit growth.

HCA should have been able to forecast that its business was going to undergo some change as a result of the health care reforms enacted last year. If insurers are going to pay less, then patients are going to forgo anything except critically needed treatment. It doesn’t take a rocket scientist to figure that out.

HCA, and its underwriters, could have been more explicit in describing the risk related to HCA’s business. Here’s what the prospectus claims:

“During periods of high unemployment, governmental entities often experience budget deficits as a result of increased costs and lower than expected tax collections. These budget deficits at federal, state and local government entities have decreased, and may continue to decrease, spending for health and human service programs, including Medicare, Medicaid and similar programs, which represent significant payer sources for our hospitals. Other risks we face during periods of high unemployment include potential declines in the population covered under managed care agreements, patient decisions to postpone or cancel elective and non-emergency health care procedures, potential increases in the uninsured and underinsured populations and further difficulties in our collecting patient co-payment and deductible receivables.”

That description is so generic that it resembles placebo. Inpatient and outpatient surgeries have been declining slowly since 2006 and reached their lowest point in 2010.

Another weight on HCA is the end of its lock-up period in September, when 383 million more shares of stock will be eligible for re-sale. The company issued around 124 million shares at its March IPO.

Health Management Associates reports earnings tomorrow, and if it has the same issue with surgeries that hit HCA, the whole hospital sector is in for another beating. If HMA avoids the issue, then HCA may fall even further on its own.

HCA shares posted a new post-IPO low of $26.96 in early trading today, but the shares have come back to around $27.89 at mid-day. The post-IPO high is $35.37.

Paul Ausick

Barclays PLC (NYSE: BCS) Cut to Neutral at HSBC.
Biogen Idec Inc. (NASDAQ: BIIB) Raised to Outperform at Credit Suisse.
Boston Scientific Corporation (NYSE: BSX) Raised to Buy at Stifel Nicolaus.
Cabot Oil & Gas (NYSE: COG) Raised to Outperform as Bull of the Day at Zacks.
Diamond Offshore Drilling Inc. (NYSE: DO) Raised to Outperform at Wells Fargo.
F5 Networks, Inc. (NASDAQ: FFIV) Raised to Overweight at Barclays.
Forest Laboratories Inc. (NYSE: FRX) Raised to Buy at Argus.
FriendFinder Networks Inc. (NASDAQ: FFN) Started as Buy at Ladenburg Thalmann.
JDS Uniphase (NASDAQ: JDSU) Underperform as Bear of the Day at Zacks.
Philips Electronics NV (NYSE: PHG) Cut to Hold at S&P Equity Research.
Polo Ralph Lauren Corporation (NYSE: RL) Started as Outperform at Wells Fargo.
Universal Health Services, Inc. (NYSE: UHS) Reiterated Strong Buy as Value Stock at Zacks.

You are invited to join our free daily email distribution list to hear more about analyst upgrades and downgrades, top day trader and active trader alerts, dividend trends, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

The Flame Index started as a research tool in 2008 at the NY Innovation Design Lab (nyidlab). It was used as a general metric to evaluate companies and their risk in the media. Publicly traded Fortune 500 companies are used as a measure to calculate an overall market of negative news and the companies are ranked within that market.

Data and ranking provided by the Flame Index.

AFLAC Inc. (NYSE: AFL) Reiterated Buy and $83 target at BofA/ML.
Capella Education Co. (NASDAQ: CPLA) maintained Underperform and as Bear of the Day at Zacks Investment Research.
The Cooper Companies (NYSE: COO) Reiterated Outperform as Bull of the Day at Zacks Investment Research.
Hartford Financial Services Group Inc. (NYSE: HIG) Reiterated Buy at Argus.
International Business Machines Corp. (NYSE: IBM) Reiterated Buy at Argus.
International Flavors & Fragrances Inc. (NYSE: IFF) Reiterated Outperform and $70 target at Credit Suisse.
Las Vegas Sands Corp. (NYSE: LVS) Cut to Hold at Argus.
MetLife, Inc. (NYSE: MET) Reiterated Buy and $54 target at Argus.
Nucor Corporation (NYSE: NUE) Cut to Sell at S&P Equity Research (late-Tuesday call).
Paychex Inc. (NASDAQ: PAYX) Raised to Hold at S&P Equity Research (late-Tuesday call).
Universal Health Services, Inc. (NYSE: UHS) Reiterated Buy with $55 target at BofA/ML.

In a sector call, BofA/ML is raising estimates on earnings and orders for the first half of 2011 in DR Horton Inc. (NYSE: DHI), KB Home (NYSE: KBH), Lennar Corp. (NYSE: LEN), and Ryland Group Inc. (NYSE: RYL).  The firm maintained Buy ratings on each based on strong entry level buyers being active in the Spring.

You can join our free daily email distribution list to hear more about analyst upgrades and downgrades, top day trader and active trader alerts, dividend trends, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

Apple Inc. (NASDAQ: AAPL) Added to Short-Term Buy List with $410 target at Deutsche Bank.
Amgen Inc. (NASDAQ: AMGN) Raised to Neutral at BofA/ML.
Corporate Office Properties Trust (NYSE: OFC) Started as Neutral and $36 target at BofA/ML.
Expedia Inc. (NASDAQ: EXPE) Reiterated Buy but lowered estimates at BofA/ML.
KEMET Corporation (NYSE: KEM) Started as Buy and $19 target at BofA/ML.
Mosaic Co. (NYSE: MOS) Cut to Neutral at Gleacher & Co.
Potash Corp. of Saskatchewan (NYSE: POT) Started as Outperform and $190 target at Boenning & Scattergood.
SuperValu Inc. (NYSE: SVU) Cut to Underweight at Morgan Stanley.
T. Rowe Price Group, Inc. (NASDAQ: TROW) Cut to Market Perform at Wells Fargo.
Universal Health Services, Inc. (NYSE: UHS) Raised to Buy and $51 target at BofA/ML.
Whole Foods Market, Inc. (NASDAQ: WFMI) Cut to Market Perform at BMO.
Wynn Resorts Ltd. (NASDAQ: WYNN) Raised to Hold at KeyBanc.

Goldman Sachs is raising targets on several key chip/semiconductor stocks, although many n this excerpt of a larger sector call are catch-up calls and under the current price of the stock:
Altera Corp. (NASDAQ: ALTR) raised to $32.00 from $26.00;
Atmel Corporation (NASDAQ: ATML) raised to $10.00 from $7.25;
NVIDIA Corporation (NASDAQ: NVDA) raised to $13.00 from $11.00;
SanDisk Corporation (NASDAQ: SNDK) raised to $43.00 from $36.00;
Texas Instruments Inc. (NYSE: TXN) raised to $38.00 from $34.00.

In case you were out last week, the top five analyst calls full summary is available here (AMZN, APC, AAPL, GOOG, VVTV).

You can join our free daily email distribution list to hear more about dividend trends, analyst upgrades and downgrades, top day trader and active trader alerts, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

ABB Ltd. (NYSE: ABB) Started as Buy at ING.
Advanced Energy Industries, Inc. (NASDAQ: AEIS) Started as Buy at Merriman Curhan Ford.
Crocs, Inc. (NASDAQ: CROX) Reiterated Overweight but target raised to $13 from $9 at Piper Jaffray.
Fuel Systems Solutions, Inc. (NASDAQ: FSYS) Cut to Hold at Canaccord.
Mercadolibre, Inc. (NASDAQ: MELI) Raised to Positive at Susquehanna.
MetroPCS Communications Inc. (NYSE: PCS) Reiterated Buy and Target raised to $11 from $9 at Auriga; Raised to Strong Buy at S&P.
PMI Group Inc. (NYSE: PMI) Raised to Outperform at KBW.
Radian Group Inc. (NYSE: RDN) Raised to Outperform at KBW.
Randgold Resources Ltd. (NASDAQ: GOLD) Cut to Market Weight at Thomas Weisel.
Sequenom Inc. (NASDAQ: SQNM) Reiterated HOLD and $4 target at Auriga.
Universal Health Services (NYSE: UHS) Raised to Outperform at Wells Fargo.

You can join our free daily email distribution list to hear more about dividend trends, analyst upgrades and downgrades, top day trader and active trader alerts, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

Brinker International (EAT) Raised to Buy at Argus Research.
Discover Financial Services (DFS) Started as Buy at Jefferies.
Quicksilver Resources (KWK) Raised to Buy at Jefferies.
Universal Health (UHS) Raised to Buy at Deutsche Bank.
Tempur-Pedic (TPX) Raised to Buy at KeyBanc.
ViroPharma (VPHM) Started as Buy at ThinkEquity.

JON C. OGG

Bed Bath & Beyond (NASDAQ: BBBY) Cut to Neutral at SunTrust Robinson Humphrey.
BB&T (NYSE: BBT) Cut to Underperform at KBW.
First Horizon National (NYSE: FHN) Cut to Underperform at KBW.
Liberty Media Capital (NASDAQ: LCAPA) Raised to Buy at Deutsche Bank.
O2 Micro (NASDAQ: OIIM) Cut to Underweight at Morgan Stanley.
Regions Financial (NYSE: RF) Cut to Market Perform at KBW.
SunTrust (NYSE: STI) Raised to Outperform at KBW.
Universal Health (NYSE: UHS) Raised to Outperform at Credit Suisse.

Jon C. Ogg

• Asset Acceptance Capital (NASDAQ: AACC) Raised to Market Perform at KBW.
• City National (NYSE: CYN) Raised to Outperform at KBW.
• L-3 Communications (NYSE: LLL) Started as Outperform at Morgan Keegan.
• LTC Properties (NYSE: LTC) Started as Buy at KeyBanc.
• Northern Trust (NASDAQ: NTRS) Raised to Outperform at KBW.
• 3PAR (NYSE: PAR) Started as Outperform at Morgan Keegan.
• Terremark Worldwide (NASDAQ: TRMK) Started as Buy at Stanford.
• Universal Health (NYSE: UHS) Started as Overweight at JPMorgan.

Jon C. Ogg
December 18, 2008

• Community Health (NYSE: CYH) Cut from Buy to Neutral.
• Tenet Healthcare (NYSE: THC) Cut from Neutral to Sell.
• Universal Health (NYSE: UHS) Cut from Buy to Neutral.

Jon C. Ogg
October 1, 2008