Shares of U.S. hospital company Community Health Systems, Inc. CYH have slipped 36.4% in the past three months, underperforming the industry’s decline of 18.9% due to multiple uncertainties arising from the business environment. Its bigger peers, Universal Health Services, Inc. UHS and Tenet Healthcare Corporation THC, have declined 16% and 10.5%, respectively, during this time.
In contrast, the S&P 500 index has experienced a gain of 10.1% over the same period, highlighting the stark divergence in performance. The stock is down 44.2% at this point from its 52-week high of $6.29.
CYH 3-Month Price Performance Comparison
What's Weighing on CYH Stock?
The hospital industry is currently grappling with several challenges. Analysts predict that the new administration’s focus on reducing government spending and enacting policy changes could negatively impact hospital profits in the near term. Additionally, concerns over decreased hospital funding and the expiration of insurance subsidies are adding to the uncertainty surrounding the sector.
Declining patient days and shorter average stays are major headwinds for Community Health’s revenue generation. In 2023, patient days dropped by 4.6%, and in the first nine months of 2024, they fell by 3.3%. We expect that the decline will continue, with a total drop of about 5% for 2024.
The Zacks Consensus Estimate for 2024 adjusted earnings for CYH is currently pegged at a loss of 51 cents per share, which has witnessed four downward estimate revisions in the past 60 days against no movement in the upward direction. It missed the earnings estimates in three of the past four quarters and beat once, with an average negative earrings surprise of almost 396%.
Community Health’s $120 million planned sale of three Pennsylvania hospitals to WoodBridge Healthcare has been terminated due to WoodBridge's inability to secure the funding. This may affect its $1 billion divestiture plan this year.
Despite the challenges mentioned, we believe these issues will be temporary and have a minimal impact on CYH's long-term growth prospects. The company's growth drivers remain robust and should help it recover from the short-term setbacks.
CYH’s Growth Drivers
The company is focused on increasing facilities to address the growing demand for its services. It has de novo and expansion projects for inpatient facility development as well as service line expansion projects in the growth pipeline. Acquisitions and partnerships will continue to play a key role in building Community Health’s growth trajectory.
Increasing disease cases are pushing hospitals to manage higher operational and supply costs. To combat this, healthcare companies are increasingly turning to technologies like AI, automation and real-time analytics to improve patient care, optimize workflows and boost margins. Community Health is continuing its AI journey with a recent partnership with Denim Health, integrating conversational AI into its Patient Access Center to further streamline agent workloads and enhance operational efficiency.
It has also made significant investments in telehealth, which saw substantial growth during the COVID-19 pandemic. As telemedicine continues to gain popularity due to its efficiency and convenience, demand is expected to remain strong, potentially driving increased profitability for CYH.
Although Community Health continues to face pressure on patient days, its revenue per adjusted admission remains strong, which is a critical factor for its financial health. This metric grew by 0.6% in 2023 and saw a more significant increase of 4.2% during the first three quarters of 2024.
The company has divested approximately 70 hospitals over the past four years. This strategy is expected to enhance its profitability, support debt reduction efforts, and improve cash flow and margins, positioning the company for more robust financial performance moving forward.
Hold CYH for Now
Considering the company's strategic expansions and focus on integrating AI and divestment efforts to improve profitability, we believe it may not be opportune to consider profit-taking at this juncture. Maintaining a position in this Zacks Rank #3 (Hold) stock appears prudent at present. New investors might want to wait for a better entry point.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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