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Why Should You Hold Community Health in Your Portfolio?

Zacks Equity Research

Community Health Systems, Inc. CYH is well-poised for development on the back of its inorganic growth story and restructuring initiatives.

Its return on tangible equity — a profitability measure — stands at 23.2% against its industry's negative average of 2708%.

The company is well-placed for growth, evident from its favorable VGM Score of B. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.

Its long-term growth rate is pegged at 18.5%, higher than the industry's 12.1%, which remains a positive for the company.

Over the past many years, acquisitions have played a huge role in Community Health’s growth trajectory. The company continues to buy hospitals for expanding its number of licensed beds. It intends to purchase 2-4 facilities per year. Community Health generally targets hospitals that cater to relatively non-urban and suburban communities where management can add value through a specialty medical service expansion, economies of scale, additional investment in new technology and an improved process management.

Moreover, the company’s restructuring efforts lowered its costs to a great extent. In 2017 and 2018, its debt declined 12% and 19.1% year over year, respectively. It further expects to see an improved supply expense in 2019 and beyond. Going forward, the company’s expenses are projected to decrease further owing to the company's planned business rejig.

In 2018, the company purchased a total of 43 physician practices, which in turn, augur well for growth, thereby adding to its capabilities.

Community Health has been divesting units in a bid to derisk its balance sheet by paying off debt with the funds generated from the asset sales. Also disposing small assets helps it focus on its core business, which in turn, promises higher returns. As part of this move, the company sold 30 and 11 hospitals in 2017 and 2018 each. Having closed the sale of seven hospitals in the first quarter of 2019, the company looks forward to divest more facilities. Considering its divestiture trend, the same-store metrics and cash flow might improve alongside debt reduction.

However, its top line has been declining over the past three years, mainly due to falling admissions caused by lower number of hospitals. We anticipate the top line to be adversely impacted by the rapid sale of unit that could affect the bed count and patient admissions.

Shares of this Zacks Rank #3 (Hold) company have gained 4.4% in a year's time against its industry’s decline of 4.6%.


Stocks to Consider

Investors interested in the medical sector can take a look at some better-ranked stocks like Molina Healthcare, Inc MOH, Humana Inc. HUM and The Ensign Group, Inc. ENSG, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


Molina offers Medicaid-related solutions to meet the health care needs of low-income families and individuals. In the trailing four quarters, the company came up with average beat of 66.9%.

Humana works as a health and well-being company in the United States. The company pulled off average positive surprise of 7.79% in the preceding four quarters.

Ensign Group provides health care services. In the last four quarters, the company delivered average beat of 2.49%.

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