Larry Robbins' Ira Sohn Presentation: Long THC, HMA, HCA, LPNT; Short ITC ~ market folly

Wednesday, May 16, 2012

Larry Robbins' Ira Sohn Presentation: Long THC, HMA, HCA, LPNT; Short ITC

We're posting up notes from the Ira Sohn ConferenceGlenview Capital's Larry Robbins gave a presentation on going long/short various equities.

"How to cope with the market's electile dysfunction."
Disclaimer: do your own work.
Stresses now: Economy, liquidity, DC, legal review of Obamacare.
New highs: treasuries, utilities, defense.

He says long hospitals/life sciences, short treasuries/Utilities/defense.  We recently posted up why Robbins likes Life Technologies (LIFE) as well.

Long: Tenet Healthcare (THC), Health Management Associates (HMA), HCA (HCA), & LifePoint Hospitals LPNT

EBITDA has grown every year for hospitals, 9% CAGR, 1% admission growth, 3% pricing, 2% leverage, new hospitals 3%. "Affordable Care Act" is now 2409 pages, has 2 key legal questions: is the individual mandate constitutional? If not, is the rest of the ACA law, or is it all thrown out? If all thrown out, it's good for hospitals because some cuts come out.

Hospitals benefit from medicaid eligibility, reduces bad debt expense. At 6x eps, thinks worth it in any option. Worst case, no reform, 21% CAGR on eps, Medicaid expansion implies 28%, plus individual mandate over 30%. Half of hospitals are non-profit, just get by.

We flagged when Glenview bought more HMA in April as well as when Glenview started its stake in THC back in March.

For profit hospitals- can the government unilaterally take their profits from reimbursements? Not likely. P/E averages are 8.1x for the sector.

Short ITC Holdings (ITC)

Short this utility. Transmission company. FERC regulated. 60/40 equity/debt. Allowed 11% ROE, FERC allows 13.2%, so customers are overpaying by $260M to $550M.

No accounting issues, just getting a "sweetheart deal" that the regulators won't let this go on forever. If you cut their ROE by 194 bp, earnings get hit by 18%. Consensus EPS is $4.00, could really be $2.00, NI down by 20%, and share count up 60%.

P.S. - Don't miss other presentations from David Einhorn, John Paulson, Bill Ackman & more: notes from Ira Sohn Conference 2012.

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