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Community Health (CYH) Up 11% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Community Health Systems, Inc. (CYH - Free Report) . Shares have added about 11% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Community Health  Q2 Loss Narrower than Expected

Community Health reported adjusted loss of $0.25 per share in the second quarter of 2017, which was narrower than the Zacks Consensus Estimate of a loss of $0.26 per share.

Net loss attributable to the common stockholders was $137 million or $1.22 per diluted share, narrower than the net loss of $1.432 billion or $12.91 per share incurred in the year-ago quarter

Quarterly Operational Update

In the second quarter, net operating revenue of $4.14 billion surpassed the Zacks Consensus Estimate by 2.5% but decreased 9.7% year over year. On a same-store basis, net operating revenue decreased 0.7% during the three months ended Jun 30, 2017, year over year.

The second quarter witnessed a 10.8% decrease in total admissions and an 11.2% fall in total adjusted admissions, year over year. On a same-store basis, both admissions and adjusted admissions decreased 2.5% from the year-ago quarter.

In the reported quarter, total operating expenses declined 32% to $4 billion, primarily due to lower salaries and benefits paid to employees, supplies, depreciation & amortization-related expenses and other operating costs.

Financial Update

As of Jun 30, 2017, the company’s total assets declined 5% from year-end 2016 to $20.8 billion. Cash and cash equivalents grew over 200% to $768 million from year-end 2016.

The company paid off a substantial portion of its debt through divestures. It had long-term debt of $14.7 billion as of Jun 30, 2017, down 0.6% year over year.

Total shareholders’ equity was $1.4 billion as of Jun 30, 2017, down 19.4% from year-end 2016.

Cash flow from operations was $503 million at the end of the second quarter, down 20.4% year over year.

2017 Guidance

Community Health expects net operating revenue (less provision for bad debts) in the range of $15.85 billion to $16.05 billion.

The company projects adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) for 2017 in the range of $1.825–$2 billion.

Weighted-average diluted shares are expected in the band of $112–$113 million

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in  fresh estimates. There have been six downward revisions in the past 30 days. While looking back an additional 30 days, we can see even more downside. In the past month, the consensus estimate has shifted lower by 124.9% due to these changes.

Community Health Systems, Inc. Price and Consensus

VGM Scores

At this time, Community Health's stock has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 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.

Based on our scores, the stock is equally suitable for value, growth, and momentum investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #5 (Strong Sell). We expect below average returns from the stock in the next few months.




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