Community Health Systems (CYH) Down 31.3% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Community Health Systems (CYH). Shares have lost about 31.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Community Health Systems due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Community Health Q2 Earnings Top on Rising Admissions
Community Health reported second-quarter 2023 adjusted loss of 22 cents per share, narrower than the Zacks Consensus Estimate of a loss of 29 cents. The reported loss was also narrower than the prior-year quarter’s loss of $2.52 per share.
Net operating revenues increased 6.2% year over year to $3,115 million in the quarter under review. The top line beat the consensus mark by 3.2%.
The quarterly results benefited from rising patient volumes, admissions and improved occupancy rates. However, declining patient days, length of stay and rising expenses partially offset the negatives.
Quarterly Operational Update
At the second-quarter end, the hospital count for Community Health was 78, missing our estimate by 1.3%.
Patient days tumbled 2.4% year over year. The average length of stay fell 2.2% year over year, while the occupancy rate of 49.3% improved 200 basis points year over year.
Admissions grew 0.9% year over year. Meanwhile, adjusted admissions also advanced 0.9% year over year in the quarter under review. On a same-store basis, admissions and adjusted admissions improved 4.8% and 4.9%, respectively, from their corresponding prior-year quarter’s reported figures.
Licensed beds of Community Health totaled 12,735 as of Jun 30, 2023, which indicates a decrease of 606 beds from the prior-year quarter. The reported figure missed our estimate by 4.1%.
Total operating costs and expenses increased 1.9% year over year to $2,869 million in the second quarter, higher than our estimate of $2,768.3 million. The increase was mainly due to higher salaries and benefits, supplies and lease costs and rent. Meanwhile, net interest expenses of $207 million declined 5% year over year. The metric came higher than our estimate of $200.7 million.
Community Health reported a net loss of $2 million, narrower than the prior-year quarter loss of $298 million. Adjusted EBITDA improved 47.4% year over year to $373 million in the quarter under review primarily due to improved inpatient and outpatient volumes, higher acuity and lower contract labor costs. The metric beat our estimate by 11.7%.
Financial Update (as of Jun 30, 2023)
Community Health exited the second quarter with cash and cash equivalents of $118 million, which was unchanged from the figure at 2022-end. Total assets of $14,648 million declined from $14,669 million at 2022-end.
Long-term debt amounted to $11,728 million, which increased from $11,614 million at 2022-end. Current maturities of long-term debt were $30 million.
In the first half of 2023, Community Health generated operating cash flows of $91 million, up from $63 million year over year.
2023 View Reaffirmed
The company reiterated its guidance for 2023, which it had provided in the prior quarter. It expects net operating revenues between $12,200 million and $12,600 million for 2023, the mid-point of which indicates a rise of 1.5% from the 2022 reported figure of $12,211 million.
Adjusted EBITDA is estimated to be in the range of $1,475-$1,625 million. The mid-point of the guidance implies a 5.7% rise from the 2022 figure of $1,466 million.
Net loss per share is expected to be between 5 cents and 65 cents in 2023. Community Health reported a net loss of $1.38 per share in 2022.
Depreciation and amortization are predicted to be in the range of $510-$530 million. Net interest expense is estimated to be in the $815-$835 million band.
Net cash from operating activities is anticipated to be between $675 million and $825 million in 2023. Capital expenditures are expected to be between $450 and $500 million. Diluted weighted-average shares outstanding are estimated to be in the range of $130-131 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
The consensus estimate has shifted 11.71% due to these changes.
VGM Scores
Currently, Community Health Systems has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Community Health Systems has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Community Health Systems belongs to the Zacks Medical - Hospital industry. Another stock from the same industry, HCA Healthcare (HCA), has gained 2.4% over the past month. More than a month has passed since the company reported results for the quarter ended June 2023.
HCA reported revenues of $15.86 billion in the last reported quarter, representing a year-over-year change of +7%. EPS of $4.29 for the same period compares with $4.21 a year ago.
For the current quarter, HCA is expected to post earnings of $4.10 per share, indicating a change of +4.3% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.7% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for HCA. Also, the stock has a VGM Score of A.
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