Jefferies has revised its outlook for healthcare services stocks, anticipating a return to fundamentals-driven trading by 2026 as policy-related challenges ease following a turbulent period last year. The firm updated its ratings by raising Cencora to Buy status while lowering Acadia Healthcare and Chemed to Hold.
The analysis anticipates that demand utilization within the sector will remain robust, largely supported by aging demographics and steady Medicare volumes. However, commercial utilization is expected to face continued pressure due to affordability issues and weakened consumer spending.
Jefferies highlights the likely lull in legislative action leading up to the forthcoming U.S. midterm elections, a scenario historically favorable for the healthcare services sector. Additionally, they project that easing labor market conditions will drive wage inflation down to low-to-mid single digit percentages, potentially bolstering company margins.
The upgrade to Cencora reflects confidence in the company’s enhanced long-term strategic plan, a clarified risk profile, and compelling valuation amidst anticipated sustainable growth. The firm notes that earlier concerns linked to Walgreens store closures and governmental drug pricing policies have diminished, bringing renewed focus to Cencora’s execution capabilities. Furthermore, Jefferies acknowledges enduring positive trends for drug distributors, which may facilitate valuation growth aligning with larger-cap healthcare industry counterparts.
Conversely, Acadia Healthcare’s downgrade to Hold stems from Medicaid-related challenges and the expectation of balance sheet deterioration. While Jefferies views the appointment of a new chief executive positively, it cites a lack of near-term growth drivers, predicting the stock will remain range-bound until clear signs emerge of improved operational results, margin expansion, and financial stabilization.
Chemed’s rating was also reduced to Hold. According to Jefferies, a slower-than-anticipated rebound in its Roto-Rooter business overshadows gains from its hospice care arm, VITAS. Persistent pressure on margins and the absence of clear visibility into performance improvements suggest that a return to normalized growth in 2026 is unlikely. Without a strategic change, the shares face a challenging outlook without evident catalysts.