Community Health Systems Inc. CYH reported second-quarter 2015 adjusted earnings per share (EPS) of $1.14, which beat the Zacks Consensus Estimate of 91 cents. Earnings surged a massive 98.5% from the year-ago quarter primarily driven by improvement in net operating revenues and higher operating income.
The Quarter in Details
Net operating revenues increased 2.5% to $4.88 billion, which, however, fell shy of the Zacks Consensus Estimate of $4.99 billion.
Total admissions declined 1.5% while adjusted admissions were flat on a year-over-year basis. Outpatient revenues were 57.6% of total patient revenues compared with 56.6% in the year-ago quarter.
On a same-store basis, net operating revenues increased 2.2% year over year to $4.86 billion. However, total admissions declined 2.2%, while adjusted admissions fell 0.2% from the year-ago quarter.
Total operating costs and expenses increased a modest 0.5% year over year to $4.44 billion.
Operating income jumped nearly 27% from the year-ago quarter to $447 million owing to higher net revenues. Adjusted EBITDA increased 9.9% year over year to $769 million.
Spin-Off Plans
In conjunction with the release of second-quarter 2015 financial results, Community Health Systems announced that it is going to spin off 38 hospitals and Quorum Health Resources. The new company will be known as Quorum Health Corporation. The transaction is expected to be completed in the first quarter of 2016.
Financial Position
As of Jun 30, 2015, cash and cash equivalents were $365 million. Long-term debt stood at $16.62 billion. In the second quarter of 2015, net cash provided from operating activities totaled $565 million.
Guidance
Community Health provided an updated financial guidance for 2015. For full-year 2015, the company forecasts adjusted EPS in the range of $3.65–$4.10, compared with the previous guidance of $3.40–$4.05. The current Zacks Consensus Estimate is $4.05.
Net operating revenues (less provision for bad debts) are projected in the range of $19.60–$20.30 billion, compared with the previous forecast of $19.60–$20.60 billion. Same-store hospital annual adjusted admissions growth is expected in the range of zero to 2%.
Adjusted EBITDA is forecasted in the $3.00 billion to $3.17 billion range, compared with the previous projection of $3.00–$3.20 billion.
Management forecasts an additional $100 million to $175 million benefit from the Healthcare Reform in 2015. Moreover, additional acquisition synergies related to the HMA takeover (Jan 27, 2014) is projected to be at least $150 million in 2015.
Community Health expects Health Information Technology (HITECH) electronic health records incentive reimbursement of about 0.7%–0.8% of net operating revenues for 2015. Meanwhile, operating expenses related to this is expected in the range of 0.25% to 0.35% of net operating revenues.
Management anticipates capital expenditure in the range of $950 million to $1.10 billion, as compared with the previously projected $1.05–$1.25 billion.
Our Take
Community Health reported mixed second-quarter 2015 results, wherein the bottom line surpassed the Zacks Consensus Estimate, while the top line fell short of expectations.
We feel the Jun 2015 ruling on The Patient Protection and Affordable Care Act (ACA) stands in good stead for Community Health as an insured patient base will lower charity care expenses and bad debts for the company. Simultaneously, it will increase admission rates owing to improving affordability among patients.
We believe the company’s strategy to vend its small hospital assets will help it focus on large hospitals in growing non-urban areas. Improving synergies from the HMA acquisition will drive profits going forward. However, high debt levels remain a major concern.
Zacks Rank
Currently, Community Health has a Zacks Rank #3 (Hold).
Better-ranked stocks in the medical sector include Agios Pharmaceuticals AGIO, NuVasive NUVA and Abaxis ABAX. All the three stocks sport a Zacks Rank #1 (Strong Buy).
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