Shares of Community Health Systems Inc. CYH rallied to a new 52-week high of $64.82 on Jun 26 and closed a tad bit lower at $64.04. This represents a strong one-year return of approximately 41.2%, better than the S&P 500’s return of 7.2% over the same period.
The bullish trend primarily reflects the favorable Obamacare ruling. This Zacks Rank #3 (Hold) stock has a market cap of $7.56 billion and a long-term expected earnings growth rate of 16.37%.
Growth Catalysts
The Patient Protection and Affordable Care Act (ACA), popularly known as “Obamacare,” recently sailed through another Republican-backed legal challenge after the U.S. Supreme Court ruled in favor of maintaining status quo on a core provision of the law related to tax credits.
The ruling is expected to benefit Community Health as an insured patient base will lower charity care and bad debts. Simultaneously, it will increase admission rates owing to improving affordability among patients.
Moreover, Community Health is growing largely on the back of acquisitions along with reasonable organic growth. We believe that the company’s strategy to vend its small hospital assets will help it to focus on large hospitals in growing non-urban areas. On the other hand, strategic acquisitions will improve the company’s penetration, which will in turn enhance its competitive position. Moreover, improving synergies from the HMA acquisition will drive profits going forward.
However, high debt levels remain a major concern.
Estimate Revisions
The Zacks Consensus Estimate for 2015 increased by a couple of cents to $4.06 over the last 7 days. The 2016 estimates also climbed up by a penny to $4.61 over the same time frame.
Stocks to Consider
Better-ranked stocks are Tenet Healthcare THC, Universal Health UHS and Acadia Healthcare ACHC. All three stocks carry a Zacks Rank #2 (Buy).
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