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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
Image Source: Zacks Investment Research
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.