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Why Is Community Health (CYH) Up 27.8% Despite Q3 Earnings Miss?

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Community Health Systems, Inc.’s (CYH - Free Report) shares have jumped 27.8% since it reported its third-quarter earnings on Oct 26, 2022. Despite reporting weak third-quarter results, 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.

Let’s delve deeper.

Q3 Performance

Community Health reported a 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.

Quarterly Operational Update

The number of hospitals at 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.

Zacks Rank & Key Picks

Community Health currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the medical space are Elevance Health Inc. (ELV - Free Report) , Bright Health Group, Inc. (BHG - Free Report) and Inventiva S.A. (IVA - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Elevance Health’s earnings is currently pegged at $28.92 per share, indicating a year-over-year increase of 11.3%. ELV beat earnings estimates in each of the past four quarters, with an average surprise of 4.1%.

The Zacks Consensus Estimate for Bright Health’s bottom line indicates a 41.7% improvement from the prior-year reported number. The consensus estimate for BHG’s top line also indicates 68.9% year-over-year growth.

The Zacks Consensus Estimate for Inventiva’s 2022 bottom line indicates an 11.3% year-over-year improvement. IVA has witnessed two upward estimate revisions in the past 60 days against none in the opposite direction.

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