It has been about a month since the last earnings report for Community Health Systems (CYH). Shares have added about 16.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Community Health Systems due for a pullback? 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 catalysts.
Community Health Miss Q3 Earnings Estimates
Community Health reported third-quarter 2022 adjusted net loss of 52 cents per share, which missed the Zacks Consensus Estimate of earnings of 5 cents. The quarterly figure compares unfavorably with the year-ago quarter’s profit of 69 cents.
Net operating revenues amounted to $3,025 million, which declined 2.9% year over year in the third quarter. The top line also missed the consensus mark by 1.2%.
The weak third-quarter results were caused by lower admissions, patient days, occupancy rate and higher operating costs. Hurricane Ian in Florida also negatively impacted its results. However, investors were likely impressed by the company’s cost-containment efforts in the face of inflation, which brought down its cost of supplies. Further, the company stuck to its previous guidance, despite taking a hit from Hurricane Ian in the third quarter, showing resilience.
Quarterly Operational Update
The number of hospitals at the third-quarter end was 81 million. Patient days declined 13.6% year over year in the third quarter. Average length of stay declined 9.8% year over year, while the occupancy rate decreased 680 basis points to 46.7%.
Admissions slipped 3.7% year over year, but adjusted admissions rose 3.8% year over year in the quarter under review. On a same-store basis, admissions dipped 2.2% year over year, but adjusted admissions improved 5.2% from the prior-year quarter’s reported figure.
Community Health had 13,309 licensed beds as of Sep 30, 2022, which increased from 13,229 a year ago.
Income from operations declined 40% year over year to $204 million. Adjusted EBITDA decreased 17% year over year to $400 million in the third quarter.
Total operating costs and expenses were $2,821 million, which escalated from $2,775 million a year ago. Salaries and benefits and other operating expenses increased in the third quarter while the cost of supplies declined. Meanwhile, CYH’s interest expense, net, increased marginally to $217 million from $216 million a year ago.
Financial Update (as of Sep 30, 2022)
Community Health exited the third quarter with cash and cash equivalents of $300 million, down from the 2021-end figure of $507 million. Total assets at the third-quarter end were $14,914 million, down from $15,217 million at 2021-end.
Long-term debt amounted to $11,943 million, which declined from the $12,109 million level at 2021-end. Current maturities of long-term debt were at $21 million.
Net cash provided by operating activities was at $137 million in the third quarter of 2022, up from $121 million in the year-ago period.
2022 Outlook in Details
CYH reaffirmed its previous 2022 annual earnings guidance of a net loss per share of $2.55-$1.65.
Adjusted EBITDA was projected within the $1,300-$1,400 million range. The outlook suggests a decline from $1,969 million in 2021. Net operating revenues were expected in the range of $12,200-$12,500 million compared with the year-ago level of $12,368 million. For the medium-term (4 years), net revenue growth was expected in the mid-single digit.
Net cash provided by operating activities was anticipated to lie between $500 million and $600 million for 2022. Last year, CYH reported net cash used in operations of $131 million. Capex was expected within $450-$500 million.
The company now expects labor inflation for 2023 to be within the 3-4% range.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
The consensus estimate has shifted 6.25% due to these changes.
At this time, Community Health Systems has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
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 9% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.
HCA reported revenues of $14.97 billion in the last reported quarter, representing a year-over-year change of -2%. EPS of $3.93 for the same period compares with $4.57 a year ago.
HCA is expected to post earnings of $4.76 per share for the current quarter, representing a year-over-year change of +7.7%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.1%.
HCA has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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