Catering to rural populations, LifePoint Hospitals (Nasdaq:LPNT) has been making money on a steady basis for years. Yet, its stock has consistently traded over the past decade between $20 and $40. Currently just under $40, I look at why it's a perfect time for it to shoot passed $40 and into the $50s.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers

Stock Price

When I write stock recommendations I usually end the discussion talking about price. However, in this instance, I'm going to put the conversation upfront because I think investors need to know the hurdle it's about to jump is a significant obstacle. If you take its annual return over the last decade and remove the best and worst years--42.4 and -23.2%, respectively--you will see that it hasn't lost much, but it hasn't made much either. Mediocre would be the best way to describe its stock's performance. Over a 10-year period ended June 11, its annualized total return is -0.08%. That's marginally better than its peers in the medical care industry, but 474 points worse than the S&P 500. Great stocks beat all comers including major indexes as well as the competition. So, what I want to do is figure out why it's underperforming and whether its past will permanently dictate its future. Then I can accurately assess its merits as a long-term buy.

Who Is LifePoint?

LifePoint only began its life as an independent company in May 1999 when it was spun off from Columbia/HCA Healthcare, and its sister spin off was Triad Hospitals. Shareholders received one share of LifePoint and one share of Triad for every 19 shares of the parent. LifePoint was originally created by HCA in November 1997 to operate general acute care hospitals in non-urban communities. Its growth spurt came in April 2005 when it merged with Province Healthcare Company, an operator of 21 hospitals in rural areas. Paying $1.7 billion for the company, including issuing 15 million shares, the combined business would have 50 hospitals in 19 states and revenues of $1.9 billion by the end of 2005. It has grown revenues every year since then. In June, it announced it was buying Woods Memorial Hospital in Etowah, Tennessee, its 55th hospital. Business is good.


LifePoint completed fiscal 2005 with income from continuing operations of $79.0 million or 4.3% of revenue. Six years later it was $165.5 million or 5.5% of revenue. An increase of 120 basis points over six years might not seem like a lot but given the healthcare environment that's existed in recent years, it's more than plenty. In fact, it's better than three of its closest peers by market cap: Community Health Systems (NYSE:CYH), Tenet Healthcare (NYSE:THC) and Health Management Associates (NYSE:HMA). LifePoint's gotten off to a good start in 2012 with first quarter revenues increasing 12.2% to $851.0 million with continuing operations up 22.3% to $56 million. As a result of a good first quarter, management raised its full-year guidance from a range of $3.05 to $3.30 a share to $3.35 to $3.60 diluted earnings per share. Assuming it hits the bottom of the range, its earnings per share will have increased 11.8% annually over the last decade, yet its share price has only increased 2.7% on an annualized basis. Share prices long-term generally follow earnings. Look for reversion to the mean to kick in at some point in the future.

The Bottom Line

The biggest reason I like LifePoint is because it serves rural communities that might not have a hospital if not for its strategy of entering smaller communities. Sam Walton's original business plan was to go where others wouldn't. Wal-Mart (NYSE:WMT) turned out OK. So too will LifePoint. Patient investors will reap rewards.

At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Personal Finance

    Protect Your Home From Medicaid Liens

    Plan ahead for long-term care needs to protect your home and your estate.
  2. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  10. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!