It has been about a month since the last earnings report for Community Health Systems (CYH). Shares have lost about 16% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Community Health Systems due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Community Health Miss Q1 Earnings, Decline Y/Y
Community Health reported first-quarter 2023 adjusted loss of 43 cents per share, wider than the Zacks Consensus Estimate of a loss of 22 cents and our estimate of a loss of 30 cents. Additionally, the bottom line declined by a significantly high margin of 207%.
Net operating revenues slid 0.1% year over year to $3,108 million in the quarter under review. However, the top line beat the consensus mark by 3.1% and our estimate of $3,005.6 million.
The quarterly results were affected by declining patient days, length of stay and occupancy rate year over year. Rising expenses also affected the results. However, better admissions partially offset the negatives.
Quarterly Operational Update
At the first-quarter end, the hospital count for Community Health stood at 79, meeting both the Zacks Consensus Estimate and our estimate.
Patient days tumbled 7.9% year over year. The average length of stay fell 9.8% year over year, while the occupancy rate of 51.9% deteriorated 110 basis points year over year.
Admissions grew 1.2% year over year. Meanwhile, adjusted admissions advanced 5.8% year over year in the quarter under review. On a same-store basis, admissions and adjusted admissions improved 4.8% and 9.4%, respectively, from their corresponding prior-year quarter’s reported figures.
Licensed beds of CYH totaled 12,750 as of Mar 31, 2023, which indicates a decrease of 539 beds from the 2022-end level. The reported figure missed both the consensus mark and our estimate of 12,841 beds.
Total operating costs and expenses increased 2% year over year to $2,898 million in the first quarter, higher than our estimate of $2,769.9 million. The increase was mainly due to higher salaries and benefits, supplies, lease cost and rent and depreciation and amortization expenses. Meanwhile, net interest expenses of $207 million declined 4.6% year over year.
Community Health reported a net loss of $20 million, which plunged 166.7% year over year. Adjusted EBITDA dropped 18.1% year over year to $335 million in the quarter under review primarily due to higher salaries and benefits expense, lower acuity, higher rates for outsourced medical specialists, unfavorable changes in payor mix and lower pandemic relief funds recognized.
Financial Update (as of Mar 31, 2023)
Community Health exited the first quarter with cash and cash equivalents of $144 million, which rose from $118 million at 2022-end. Total assets of $14,623 million fell from $14,669 million at 2022-end.
Long-term debt amounted to $11,696 million, which increased from $11,614 million at 2022-end. Current maturities of long-term debt came in at $39 million.
During the first quarter of 2023, CYH generated operating cash flows of $5 million, down from $101 million at 2022-end.
The company reiterated its guidance for 2023, which it had provided in the prior quarter. It expects net operating revenues to be between $12,200 million and $12,600 million this year, the mid-point of which indicates a rise of 1.5% from the 2022 reported figure of $12,211 million.
Adjusted EBITDA is estimated to be within $1,475-$1,625 million. The mid-point of the guidance implies a 5.7% rise from the 2022 figure of $1,466 million.
Net loss per share is expected to be between 5 cents and 65 cents in 2023. Community Health reported a net loss of $1.38 per share in 2022.
Depreciation and amortization are predicted to be within $510-$530 million. Net interest expense is estimated in the $815-$835 million band.
Net cash provided by operating activities is anticipated between $675 million and $825 million in 2023. Capital expenditures are expected within $450-$500 million. Diluted weighted-average shares outstanding are estimated within 130-131 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -8.47% due to these changes.
Currently, Community Health Systems has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Community Health Systems has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Community Health Systems belongs to the Zacks Medical - Hospital industry. Another stock from the same industry, Tenet Healthcare (THC), has gained 0.7% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.
Tenet reported revenues of $5.02 billion in the last reported quarter, representing a year-over-year change of +5.8%. EPS of $1.42 for the same period compares with $1.93 a year ago.
For the current quarter, Tenet is expected to post earnings of $1.26 per share, indicating a change of -16% from the year-ago quarter. The Zacks Consensus Estimate has changed +3.4% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Tenet. Also, the stock has a VGM Score of A.
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