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Hospital stocks will face test with High Court ruling

Updated: July 27, 2012 6:21AM

Analysts for health care stocks said that if the Supreme Court upholds any part of the law, the value of shares in the industry is likely to rise. But after that first-blush reaction, the stocks could decline as the industry grapples with new uncertainty, the analysts said.

If the mandate is struck down but higher taxes on health care companies remain, the incentive for increased business volume would be gone. The change could hurt the earnings of hospital chains such as Universal Health Services or Tenet Healthcare.

Ben Andrew, group head for health care research at William Blair & Co., said the sector ultimately might rally as investors bet that a revised law will be written with more Republican input following the November election. He said that could mean the law will have more market-based answers than the current Affordable Care Act.

At Robert W. Baird & Co., an analyst team led by Whit Mayo said in a report issued Friday that an affirmation of any part of the law should bring on a rally of 10 percent in hospital stocks. Many of these shares have fallen in recent months on doubts about health care reform but have traded higher in recent days.

If the court throws out the entire law, hospital shares may decline up to 10 percent, the report said.

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