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Community Health (CYH) Soars 111% YTD: More Room to Run?

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Community Health Systems, Inc. (CYH - Free Report) has been in investors’ good books on the back of its strategic initiatives, divestitures and cost-reduction efforts.

Shares of this currently Zacks Rank #3 (Hold) company have skyrocketed 111% year to date compared with its industry’s growth of 26.8%. You can see  the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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The price performance looks stellar when compared to stocks like HCA Healthcare, Inc. (HCA - Free Report) , Tenet Healthcare Corporation (THC - Free Report) and MEDNAX, Inc. (MD - Free Report) , which too have rallied 27.6%, 69.6% and 32.7%, respectively, in the same time frame.

This hospital company has been gaining from a slew of acquisitions. It continues to buy hospitals to expand its number of licensed beds. It generally targets hospitals that cater to relatively non-urban and suburban communities where management can enhance value through specialty medical service expansion, economies of scale, additional investment in new technology and an improved process management. In the first quarter of 2021, it spent $4 million on buyouts.

Apart from that growing demand for healthcare services, an aging population has been contributing to its upside for a while now.

The company also opened two hospitals in Indiana and Arizona and has further plans to unveil one in Fort Wayne later this year. The hospital company have added around 300 beds to the core portfolio over the past three years along with more than 50 new surgical and procedural suites. In the first quarter, it opened a freestanding ER and two additional ASCs.

Its robust guidance also impresses. After the March-quarter results, it expects Adjusted EBITDA in the range of $1.7-$1.8 billion, higher than the previous guidance of $1.6-$1.8 billion. Net income per share is expected between 25 cents and 60 cents per share, narrower than the past outlook of 0-60 cents. Net operating revenues are still expected between $11.7 billion and $12.5 billion, indicating an upside of 2.5% from the 2020 reported figure.

Community Health is consistently shedding small assets to intensify focus on its core business. As of Mar 31, 2021, the company already sold its Lea Regional Medical Center, Tennova Healthcare (Tullahoma), Tennova Healthcare (Shelbyville) and Northwest Mississippi Medical Center.

Its restructuring initiatives lowered its costs to a great extent. In the first quarter of 2021, total operating costs and expenses fell 7.8% owing to decline in salaries and benefits, supplies, lease cost and rent, and depreciation and amortization. Going forward, its expenses are expected to improve further on the back of a planned business rejig.

Further Upside Left?

We believe that the company is well-poised for growth on the back of various strategic actions. Moreover, against the current backdrop, demand for telehealth services is likely to stay, which in turn, will provide the company with an extra cushion going forward.

The stock carries an impressive VGM Score of A. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.  

The Zacks Consensus Estimate for the company’s 2021 earnings indicates an improvement of 51.1% from the year-ago reported figure.

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