Background

  • Capstone has followed the potential impact of the Affordable Care Act (ACA) repeal and replace efforts and how this could impact firms with ACA exchange and managed Medicaid exposure such as Centene and Tenet Healthcare.

Process

  • We analyzed new and recent Republican healthcare policy legislation and related proposals.
  • We spoke to dozens of stakeholders involved in the ACA repeal and replace process, policymakers and did a thorough review of individual healthcare firms’ exposure under different repeal scenarios.
  • We also did diligence on the timing and likelihood of different repeal provisions to discover discrepancies between how the market was pricing risk versus the risk of our expected outcomes.

Outcome

  • We concluded that investors were overweighting the likelihood and impact of Republican ACA repeal and replace efforts for Tenet Healthcare and Centene.  We also highlighted temporal miscalculations by investors in these stocks early on in the repeal process and how these errors were generating attractive buying opportunities for investors.  We also concluded that these companies had non-ACA exposed areas of their business that would benefit from separate government policy shifts that could mitigate their respective downsides if the ACA repeal and replace effort proved successful.  Since our first note on the situation was written in January 2017, shares of Tenet Healthcare have risen over 110%and shares of Centene have risen over 140%.
- Capstone LLC -

Washington DC

-Capstone Research Limited-

London