May 2, 2017 / 1:07 PM / 8 months ago

UPDATE 3-Hospital operator HCA Holdings eyes M&A for growth

* Q1 earnings $1.74/shr vs est of $1.76/shr

* Q1 revenue up 3.5 pct to $10.62 bln vs est of $10.76 bln

* Expense ratios suffered from the relative lack of higher-margin insurance revenue - Mizuho analyst

* Shares up 1.5 pct (Adds conference call details, updates shares)

By Ankur Banerjee

May 2 (Reuters) - HCA Holdings Inc said it would continue to scope out deals even as the largest U.S. for-profit hospital operator’s quarterly profit missed Street estimates, hurt by an increase in low-margin Medicare admissions.

Shares of HCA, which said on Monday it would buy 5 hospitals in Texas from rivals Tenet Healthcare and Community Health, were up 1.5 percent in afternoon trading on Tuesday.

Analysts expect the deals, which expand HCA’s presence in Texas, to improve commercial insurer pricing and boost profitability over the next couple of years.

“We will see if we can continue to achieve some opportunities for growth through acquisitions ... it is more active than say over the past couple of years,” HCA Chief Financial Officer William Rutherford said on a call with analysts.

Tenet Healthcare Corp and Community Health Systems Inc have been looking to turn their businesses around by selling off assets in the past few months to ease debt load.

“We are encouraged by the company’s (HCA) opportunistic efforts around acquisitions,” Oppenheimer analyst Michael Wiederhorn said.

Hospital operators’ shares have come under pressure as Republicans persist with their plans to dismantle the Affordable Care Act, popularly known as Obamacare, with investors concerned that a healthcare overhaul will curtail the benefits hospitals have gained from expanded insurance coverage.

Their stocks had surged after Republicans pulled their initial bill in March, dealing a setback to President Donald Trump’s vow to repeal Obamacare.

HCA Holdings Chief Executive Milton Johnson said the company is “actively engaged in discussions with policymakers in Washington” regarding the healthcare reform.

LOW-MARGIN MEDICARE HOLDS BACK PROFIT

HCA Holdings’ net income attributable fell 5 percent to $659 million, or $1.74 per share, in the first quarter ended March 31, missing analysts’ estimates of $1.76 per share, according to Thomson Reuters I/B/E/S.

Mizuho Securities USA analyst Sheryl Skolnick said that expense ratios suffered from the relative lack of higher-margin insurance revenue.

Same-facility Medicare admissions comprised 48.1 percent of total first quarter admissions, up from 47.0 percent in the prior-year quarter.

Medicare, typically a lower-margin business for hospitals, is the federal health insurance program for people who are 65 and above.

HCA’s equivalent admissions, which include both patients who stay in the hospital overnight and those who are treated on an outpatient basis, rose 1.2 percent.

In contrast, Tenet Healthcare and Community Health Systems reported a fall in adjusted admissions even as they reported better-than-expected results.

Reporting by Ankur Banerjee in Bengaluru; Editing by Supriya Kurane

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