KeyBanc Capital Markets writes that Healthcare Services stocks are expected to see significant changes in 2025.
Strong volumes, increased enrollment in health insurance exchanges (HIX) and Medicaid-directed payment programs (DPPs) will likely benefit hospitals.
However, the uncertain policies under Trump may still affect investor confidence.
Medicare Advantage (MA) managed care organizations (MCOs) are still facing higher costs, but the funding situation for MA could improve in the first half of 2025, offering a clearer path for profit recovery in 2026 and beyond.
As the industry approaches 2025, KeyBanc analyst Matthew Gillmor says he prefers stocks tied to higher patient volumes that are somewhat protected from policy changes.
The analyst expects patient volumes to stay high due to strong HIX enrollment and ongoing post-COVID trends, which will benefit hospitals' earnings but may limit earnings growth for MCOs.
KeyBanc highlights that volume comparisons will be tough and will monitor proprietary data for trend changes.
Healthcare policy will be a key focus in the first half of 2025, with HIX subsidies and Medicaid DPP being important for hospitals and the 2026 MA rate notice as well as Humana Inc's (NYSE:HUM) lawsuit being key for MCOs.
KeyBanc expects the policy situation for MA MCOs to improve by April, with UnitedHealth Group Inc (NYSE:UNH) being the top choice to benefit from this. Additionally, sentiment around behavioral hospitals, particularly Acadia Healthcare Co (NASDAQ:ACHC), is likely at its lowest.
KeyBanc has upgraded Acadia Healthcare to Overweight from Sector Weight with a price target of $70, citing meaningful higher inflection during 2025 as investors gain visibility into the potential 2026 EBITDA acceleration and valuation returns to historical ranges.
Acadia's stock lagged behind the market in 2024 due to external challenges and rising startup expenses, which hurt EBITDA in 2024 and 2025. The analyst believes these issues will improve by 2026, as new beds added in 2024-2025 start to pay off and the increase in startup losses during 2025 slows down or stabilizes.
Price Action: ACHC stock is up 1.45% at $45.50 at last check Tuesday.