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Could Community Health Systems Be the Best Bargain in Healthcare?

Community Health Systems stock forecast

Hospital and healthcare facilities operator Community Health Systems Inc. (NYSE: CYH) is one of the largest for-profit hospital operators in the nation. However, they aren’t GAAP profitable. The healthcare provider operates 78 hospitals with over 13,000 beds and over 1,000 sites of care, which include doctor's offices, urgent care centers, cancer treatment centers and standalone emergency departments. Its acquisition strategy has grown its goodwill to $4 billion. The company is going through a negative normalization as pandemic relief funds have dried up. It competes with HCA Healthcare Inc. (NASDAQ: HCA) and Tenet Healthcare Co. (NYSE: THC).

Post-Pandemic Improvements

Community Health had some positive developments in the previous quarter. It had extinguished $378 million in notes outstanding and expects to retire $645 million of debt in the second half of 2023, capturing a $300 million discount. Surgeries saw a 420 bps jump, bringing it back over pre-pandemic levels as emergency department volumes grew 8.7%.

Negative Normalization Continues

On March 1, 2023, Community Health reported its fiscal Q1 2023 earnings for the quarter ended March 2023. The Company reported an earnings-per-share (EPS) loss of ($0.43) excluding non-recurring items, versus consensus analyst estimates for a loss of ($0.16), a ($0.21) miss. Revenues fell 0.1% year-over-year (YoY) to $3.11 billion, beating analyst estimates for $3.9 billion. Adjusted EBITDA totaled $335 million, down from $409 million in the year-ago same period.

Net loss was ($51 million) versus ($1 million) in the year-ago period. This was partially due to the pandemic relief funds that had a positive impact of $47 million in Q1 2022. The cause of losses was primarily due to unfavorable changes in the payor mix, higher labor costs and rates for medical specialists and the reduction in pandemic relief funds. However, this was offset by more substantial volumes, higher reimbursement rates, and reduced expenses for contract labor.

CEO Insights

Community Health CEO Tim Hingtgen discussed the challenges in the quarter. This included payor mix changes and higher fees for medical specialists, partly countered by higher volumes and rising reimbursements from different payors. Same-store admissions rose 4.8% YoY, and adjusted admissions rose 9.4%. Same-store surgeries showed specific strength growing 10.6% YoY, led by orthopedics, cardiovascular, GI, gynecology and urology.

The company invested in its most robust markets in both inpatient and outpatient facilities. This includes a 112-bed expansion in its Naples, FL network and a new freestanding ambulatory surgical emergency room in Birmingham, AL. Its new centralized nursing recruitment functions "extremely well" as it attained mid-single-digit gains for high-end nurses sequentially. Success with centralized recruitment is being expanded in scope to include all clinical positions. The company has access to 1,000 new nurses annually through its partnership with Jersey College School of Nursing.

Voted #1 U.S. Healthcare System

Community Health had a 500 bps improvement in nursing turnover while reducing severe safety events by 87.9% since 2013. This helps Community Health to gain a #1 ranking among the top 30 U.S. healthcare systems for online reputation. This comes from positive reviews and online ratings for its healthcare providers and services, which results in more onboarding of new patients.

 He concluded, “Through targeted investments in innovative technologies to improve outcomes, we continue to see positive results in clinical quality and customer experience. These programs include virtual sitters for patients at high risk for falls, maternal-fetal monitoring technology that enables earlier interventions when needed in labor and delivery and the current rollout of at-home remote patient monitoring for individuals with chronic health conditions.”

Community Health Systems analyst ratings and stock price targets are at MarketBeat.

Community Health Systems stock chart


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Weekly Rounding Bottom to Cup and Handle Failure

The weekly candlestick chart peaked at around $12.12 in April 2022, selling off to $1.88 in October 2022. Shares formed a weekly market structure low (MSL) trigger on the breakout through $3.05. CYH formed a rounding bottom as shares rocketed to a high of $8.01 in February 2023 on its surprise EPS beat, but shares have since fallen since its Q1 2023 earnings report. CYH formed a parallel falling price channel causing shares to hit a low of $3.48 in May 2023. The weekly 20-period exponential moving average (EMA) is a falling resistance at $4.40, and the weekly 50-period MA resistance is at $4.03. Another weekly MSL trigger formed at $4.05. The weekly RSI has bounced off the 40-band. Pullback support levels are at $3.66, $3.35, $2.68 and $2.40.


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