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THC Pitted Against CYH: Which is a Better-Positioned Stock?

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The hospital industry has partially suffered the COVID-19 pandemic, bearing the brunt of high expenses and postponed elective surgeries.

Nonetheless, it is gradually bouncing back on the back of government aid, patient volumes and cost-cutting measures.

As more vaccines hit the market, hospital companies are hopeful that patient volumes and earnings results could strengthen throughout the year, though both will be non-linear.

The bipartisan CARES Act and the Paycheck Protection Program, and Health Care Enhancement Act provided $178 billion as relief funds to the hospitals and other healthcare providers who are the front-line coronavirus warriors. The Department of Health and Human Services has been disbursing aid since April 2020 to hospitals and other health care providers in tranches. These funds are aimed at relieving hospitals from the loss incurred amid COVID-led business disruption.

Per Tenet Healthcare Corporation (THC - Free Report) , a leading company in the industry, the aid helped it alleviate the losses in its system that stemmed from COVID-19.

Moreover, companies in this industry took up several cost-curbing strategies to combat the present situation. Some of the companies are also divesting their non-core and unprofitable business units to repay debt and maintain financial liquidity.

Companies like HCA Healthcare, Inc. (HCA - Free Report) are also expanding telemedicine product offerings. Given the current scenario, we expect this business to continue performing well because of high demand.

The overall bullish scenario makes us believe that growth will be consistent in this industry, which should boost prospects of the companies with strong business fundamentals. The buoyancy in the hospital space is confirmed by the Zacks Hospital industry’s position, which is placed within the top 21% (53 of 254).

Against this backdrop, let’s look at the two leading hospital companies, namely Tenet Healthcare and Community Health Systems, Inc.(CYH - Free Report) with a Zacks Rank #2 (Buy) each at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Tenet Healthcare and Community Health have gained 180.1% and 269.2% in the past year, respectively. The industry has rallied 82.3% in a year’s time compared with the S&P 500 Index’s 52.4% increase.

Estimate Movement

For 2021, the Zacks Consensus Estimate for Tenet Healthcare has moved 0.2% north to $4.56 in the past 30 days. Notably, the same for Community Health rebounded from a loss of 4 cents per share to earnings of 19 cents over the same time frame. Here, Community Health has an edge over Tenet Healthcare.

Earnings Surprise History

A stock’s earnings surprise track helps investors get an idea about its performance in the previous quarters.

Community Heath’s bottom line beat estimates thrice in the trailing four quarters (while missing in one) with an earnings surprise of 120.8%, on average.

Tenet Healthcare’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 199.1%. Thus, Tenet Healthcare clearly has an edge over Community Health here.

Return on Equity

Return on equity (ROE) is a profitability measure, which accounts for profits generated on shareholders’ equity. Hence, higher ROE reflects the company’s efficiency in using its shareholders’ funds and is preferred by all equity investors.

Tenet Healthcare’s ROE of 77.5% came in against Community Health’s negative ROE of 2.9%. Here too, the former is better placed than the latter.

Valuation

Price-to-earnings value is one of the multiples used for valuing hospital companies. Compared with the hospital industry’s forward 12-month P/E ratio of 14.5, Community Health and Tenet Healthcare have a reading of 36.1 and 10.9, respectively.

Tenet Healthcare has a better reading than that of Community Health.

Debt-to-Capital

Both companies have higher debt-to-capital ratio than the industry average of 89.6X. However, Tenet Healthcare’s leverage ratio of 94.4X betters Community Health’s 114.4X. Therefore, Tenet Healthcare is at an advantage on this front.

Bottom Line

Our comparative analysis shows that Tenet Healthcare is better-placed than Community Health with respect to leverage ratio, valuation, return on equity and earnings surprise. Meanwhile, Community Health scores higher in terms of estimate revision. As the scale is significantly tilted toward Tenet Healthcare, the stock discernibly makes a more promising investment proposition.

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In-Depth Zacks Research for the Tickers Above


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Community Health Systems, Inc. (CYH) - free report >>

Tenet Healthcare Corporation (THC) - free report >>

HCA Healthcare, Inc. (HCA) - free report >>