Why Community Health (CYH) Shares Are Attracting Investors Now
Community Health Systems, Inc. CYH is well-positioned for growth, driven by increased occupancy, admissions and rising demand for high-quality acute care services. The company's strategic emphasis on divesting non-core assets to enhance same-store metrics and improve profitability is noteworthy.
Community Health, with a market capitalization of $428 million, is anticipated to experience growth fueled by the increasing demand for healthcare services. This growth can be attributed to the expanding elderly population and a rising incidence of diseases. Based in Franklin, TN, the company is well-positioned to capitalize on these trends, with general acute care hospitals and outpatient facilities in communities across the United States.
Due to solid prospects, this currently Zacks Rank #2 (Buy) stock is worth investing in at the moment. Let’s delve deeper.
The Zacks Consensus Estimate for Community Health’s 2023 earnings indicates a 31.2% year-over-year improvement. The estimate remained stable over the past week. Further, the consensus estimate for 2024 earnings indicates 112.6% year-over-year growth. CYH beat on earnings in two of the last four quarters and missed twice, with an average surprise of 22.1%. This is depicted in the graph below.
Community Health Systems, Inc. Price and EPS Surprise
Community Health Systems, Inc. price-eps-surprise | Community Health Systems, Inc. Quote
The consensus estimate for 2023 full-year revenues stands at $12.5 billion, suggesting a 2% rise from the prior-year reported figure. For 2024, the consensus mark is pegged at $12.7 billion. Growth in revenue per adjusted admission is likely to be a major tailwind. We expect the metric to witness 0.4% year-over-year growth in 2023 and 1.3% in 2024.
Additionally, we expect the occupancy rate to increase in the coming days. Our model predicts the metric to increase to 51.5% in 2023 compared with the 49.2% witnessed in 2022. Furthermore, we expect the occupancy rate to continue its upward trend, reaching 53.5% in 2024, reflecting improving utilization of its facilities and services.
The company expects capital expenditures for 2023 to be in the range of $450-$500 million, up from $415 million in 2022. This is expected to enable the company to address the rising demand for healthcare services and tap into high-return opportunities.
To improve same-store metrics and profitability, the company divests non-core and low-profitable assets. In 2023, it executed some major divestments, including Plateau Medical Centerand Greenbrier Valley Medical Center. Early December, last year, it completed the divestment of three of its Florida facilities and their associated assets to Tampa General Hospital and some of its affiliates for $294 million. Moves like this free up capital for investment in core markets.
Community Health's strategic investments in telehealth can be a major tailwind, considering the increasing popularity and efficiency gains. The rising demand for remote care further supports the potential for growth in this area. Also, building on the success of its virtual sitting program in selected hospitals, the company is anticipated to expand the program to additional hospitals.
Key Concerns
There are a few factors that investors should keep an eye on.
Balance sheet weakness can affect CYH's financial flexibility. It exited the third quarter with cash and cash equivalents of only $91 million, which declined from $118 million at 2022-end. On the other hand, long-term debt amounted to $11.8 billion, which increased from $11.6 billion at 2022-end.
Also, its return on assets — a profitability measure — was 0.5% compared with the industry average of 7.3%. This indicates inefficient utilization of assets now. Nevertheless, we believe that a systematic and strategic plan of action will drive long-term growth.
Other Key Players
Some other top-ranked stocks in the broader Medical space are Brookdale Senior Living Inc. BKD, Enovis Corporation ENOV and Motus GI Holdings, Inc. MOTS, each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Brookdale Senior’s full-year 2023 earnings indicates a 49.6% year-over-year improvement. HQY beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 23.5%.
The Zacks Consensus Estimate for Enovis’ 2023 full-year earnings implies a 4.9% increase from the year-ago reported figure. The consensus mark for its current-year revenues is pegged at $1.7 billion. ENOV beat earnings estimates in all the trailing four quarters, with an average surprise of 11%.
The Zacks Consensus Estimate for Motus GI’s 2023 bottom line suggests a 67.2% year-over-year improvement. MOTS has witnessed one upward estimate revision over the past 30 days against no movement in the opposite direction. It beat earnings estimates in all the last four quarters, with an average surprise of 40.2%.
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Community Health Systems, Inc. (CYH) : Free Stock Analysis Report
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