Stocks across the healthcare world were driven up on Thursday after the Supreme court ruled in favor of Obamacare. Community Health Systems (NYSE:CYH) and Tenet Healthcare Corp (NYSE:THC) were among the strongest performers on the market on June 25 as Wall Street absorbed the impact of a clean road ahead for President Obama’s healthcare plan.
The Supreme Court ruled today that a reading of the Affordable Healthcare Act that would have closed many of the healthcare exchanges across the country was right in isolation but wrong in context. President Obama reveled in the ruling and said “After multiple challenges in the Supreme Court, the Affordable Care Act is here to stay.”
Supreme Court backs healthcare firms
At time of writing shares in Community Health Systems (NYSE:CYH) were selling for $61.95, up 12.07 for the day so far. Tenet Healthcare Corp (NYSE:THC) shares were selling for $56.47, up 12.76% in morning trading. The Healthcare sector as a whole rose by close to 0.5% on the ruling.
The Supreme court ruled in favor of the reigning administration by 6-3, making any sort of appeal of the decision unlikely to pass muster. Justice Antonin Scalia wrote a dissent that boiled over with anger at his comrades on the bench. He said that this ruling, and the previous one on Obamacare’s position as a tax, showed that the court would do “whatever [it] takes to uphold and assist its favorites.”
34 states decided to use the Federal Exchange while just 16 sought to build their own after the ACA was brought in in 2013. The petition that the court ruled against today would have barred the federal exchanges from being offered in those states.
The challenge to the ACA appears to be over, and the healthcare firms that will gain most from the advent of a fully insured US population are getting strong support from Wall Street.
Healthcare stocks bet on future ills
Community Health Systems owns a range of hospitals that treat acute conditions across the United States. Tenet Healthcare Corporation is in a similar business. It runs 80 hospitals and 210 outpatient centers across the country.
Those hospitals are looking to get busier on the back of wider health coverage across the population, but the reality of the healthcare space after the ACA has yet to become solid. Shares in Community Health Systems were flat over the last six months before today’s trading sent it skyward. Tenet Healthcare Corporation was down for the same period before today’s ruling.
For the time being healthcare traders are betting that the ACA is safe, and that hospitals are going to largely gain on the increase in traffic on the back of a more widely insured market.
With Community Health Systems trading at more than 20 times last year’s earnings and Tenet Healthcare Corporation going for more than 50 times 2014 profits, those betting will hope to be right. The downside could be harsh if they’re not protected against error.