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Eight analysts and top management from eight sector firms examine the healthcare facilities sector in this special 73-page Healthcare Facilities issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info547.htm

TWST: John, would you agree with Kemp that, for the most part, earnings have been in line with your expectations over the past couple of quarters? Have there been any earnings surprises in the group, on the upside or the downside?

Mr. Hindelong: The companies all have met or exceeded Street estimates. I would add that the experience of the late 1990s was so painful that management learned a lesson, which was to keep expectations low, and they’ve done that very effectively. They’ve consistently climbed over a bar that is conservative, and there’s no reason why that should not continue. All the components of the earnings model are still positive. The demand is good, although we have had a light flu season, and the pricing is very good. There are plenty of acquisition opportunities. And as far as the other big issue is concerned, or wild card in the picture is concerned, the government is busy doing other things, and that’s a good thing. So I think that the kind of earnings reports that we have seen will continue and the momentum for this group should be retained for the rest of this year. With respect to the commentary on group rotation out of big cap pharma into hospitals, clearly it’s taking place. One small factoid: the market capitalization of just Pfizer is 4 times the market capitalization of this whole industry. So, to the extent that investors want to get out of one and into the other, I think there’s tremendous incremental buying power on the sidelines for the hospital group. That’s the kind of thing that will help this group sustain the strong stock performance that we’ve seen in recent weeks and months.

TWST: John, hospital admissions are hovering at levels last seen in the mid-1980s. Whereas just a couple of years ago, the hospitals were scrambling to fill beds, now it appears that many are scrambling to find them. To what do you attribute the increase in hospital admissions?

Mr. Hindelong: What you’ve had is capacity going down and admissions going up more than the world expected. It’s almost that simple. The hospital industry suffered from overcapacity several years ago. They very quietly contracted, reduced capacity. They did that by forming networks and reducing redundancies. And in the meanwhile, baby boomers have hit their 50s, and it has become apparent that projections for demand have been too conservative. Meanwhile, managed care has suffered from a backlash because they acted so aggressively as gatekeepers. The upshot is that demand, generally speaking, is stronger than most people had thought it would be, and when no one was looking, capacity contracted to a greater extent than the world realized. So you wake up one morning and find yourself in a tight supply and demand situation and that puts you, the provider, in the position of payback time. That is to say, it gives the provider the opportunity to aggressively raise prices, get price increases that they should have gotten for half the decade of the 1990s, but now they will get in the first several years of the 2000s.

TWST: And your second choice?

Mr. Hindelong: Health Management Associates (NYSE:HMA) is also rated a strong buy rated stock. It is the best company that I cover based on track record, margins, return on equity, and almost any other financial metric that you can think of. Its multiple is not at a premium to the rest of the group because new management must prove itself, and I think that that will happen over time. The catalyst should be the acceleration in growth that I think is taking place at HMA. I think this company, based on what it has accomplished for literally over a decade deserves a multiple premium, and I think it will get there soon. I think the stock can do well as a function of strong earnings growth and multiple expansion.

This special issue includes:

1) Healthcare Facilities - In an in-depth (13,700 words) Analyst Roundtable, B. Kemp Dolliver, Managing Director at SG Cowen Securities Corp., Adam Feinstein, Vice President in Equity Research at Lehman Brothers, John Hindelong, Managing Director of Credit Suisse First Boston, Frank G. Morgan, Managing Director at Jefferies & Company, Inc. and Michael Yellen, Senior Portfolio Manager at AIM Capital Management Group, examine the outlook for the sector including earnings guidance, stock performance and share specific stock recommendations.

2) Hospitals & Healthcare Facilities - In an in-depth (3,500 words) Analyst Interview, Gary Taylor, Vice President, Equity Research at Banc of America Securities LLC, examines the outlook for the sector and shares specific stock recommendations.

3) Assisted Living & Healthcare REITs - In an in-depth (5,200 words) Analyst Interview, Jerry L. Doctrow, Managing Director, Equity Research at Legg Mason Wood Walker, Inc., examines the outlook for the sector and shares specific stock recommendations.

4) Long-Term Care & Specialized Service Providers - In an in-depth (6,700 words) Analyst Interview, Matthew Ripperger, Vice President and Equity Research Analyst at JP Morgan, examines the outlook for the sector and shares specific stock recommendations.

5) CEO interviews (average 2,500 words). Top management of eight sector firms examine the outlook for their firm and the sector.