Baird Downgrades Four Health-Care Stocks – VHS, HMA, CYH, ILMN

Four health care companies faced downgrades by an investment brokerage on Monday after stocks went through considerable losses in early trading.

The downgrades made by Robert W. Baird & Co. has hit three hospital companies, namely, Vanguard Health Systems Inc., Community Health Systems Inc. and Health Management Associates Inc. Illumina Inc., a genome sequencing company, has also faced downgrade.

While wider markets have tumbled on Monday, the four companies have felt a graver acute pinch owing to the downgrades.

For the hospitals, Whit Mayo, an analyst at Baird has said in a memo to clients that that the brokerage is struggling to see how multiples in the group can increase with discussions dragging on how to deal with the national deficit in medical exchange networks of the states. He also believes that there remains a challenging environment for basics.

Mayo wrote that Baird analysts think that shareholders will see better entry points on select names as details on deficit come up.

He further added that Baird analysts are stating the obvious but Medicare policy is nearly 100% influenced by deficits and they think that extra provider rate cuts will be covered in any 2013 coordinated deficit contract. Several providers carry prominent exposure to prospective targeted supplemental payments. Deficit offer may present downside risk and volatility.

Hence, Vanguard Health Systems, Inc.(NYSE:VHS) (-2%), Health Management Associates, Inc.(NYSE:HMA) (-4.25%) and Community Health Systems(NYSE:CYH) (-3%) had to face downgrades to Neutral. Mayo mentioned that he is leaving only Universal Health Services and HCA Holdings as his sole hospital companies with the Outperform ratings as of now, although he did reduce his price targets on each of them by $2.

Jeffrey T. Elliott, a Baird analyst also cut Illumina, Inc.(NASDAQ:ILMN) (-3.33%) to Neutral from a previous rating of Outperform, saying that it may require some time to take some profits from the company.

Elliot mentioned there are several stakes related with Illumina, including the fact that BGI, one of its most important clients, made an offer in the month in September for Genomics, Illumina also experiences competition from a host of other companies.