Community Health Systems, Inc. (CYH) is slated to release its fourth-quarter and full year 2014 financial numbers on Feb 19.
In the last reported quarter, the company’s earnings topped the Zacks Consensus Estimate by an impressive 33.3%. Moreover, over the trailing four quarters, the company has posted a positive average earnings surprise of 37.6%.
Let’s see how things are shaping up for this announcement.
Factors to be Considered this Quarter
Management is optimistic about the improving volume trend observed over the past three quarters of 2014 (a 530 basis point improvement since the first quarter) and expects this to continue in the fourth quarter as well.
Recently, the company has announced preliminary results for the fourth quarter and full year 2014.
Community Health Systems expects fourth-quarter net operating revenue of $4.9 billion, in line with the current Zacks Consensus Estimate. The estimated revenue figure represents stupendous 53% growth on a year-over-year basis.
Notably, during the fourth quarter, Community Health Systems recognized the recently approved California Medicaid supplemental program’s revenues of $35 million and additional provider taxes associated with this program of $9 million.
Fourth-quarter adjusted EBITDA is estimated to grow 71% from the year-ago quarter to $785 million. For the full year, adjusted EBITDA is projected at roughly $2.78 billion, reflecting an increase of 49% year over year.
On the earnings front, Community Health Systems estimates fourth-quarter and full-year adjusted earnings at $1.23 and $3.29 per share, respectively. The fourth-quarter projection is in line with the Zacks Consensus Estimate while the same for the full year is higher than the comparable period’s estimate of $3.25. Notably, the company reported earnings per share of 30 cents and $1.51 for the fourth quarter and full year-2013.
We feel that the company is poised to gain market traction from the acquisitions of Sharon Regional Medical Center, Natchez Regional Medical Center and Upstate Carolina Medical Center. Moreover, Community Health Systems expects to continue acquire Metro Health in the first half of 2015.
Community Health Systems also recently sold Carolina Pines, one of the HMA facilities which were required to sell as determined by the Federal Trade Commission (FTC) for approximately $70 million.
The company’s physician practices are also engaging in outreach programs in order to increase patient access for preventive health services. The Medicare wellness initiatives have resulted in additional visits to the company’s physicians’ clinics. We feel Community Health Systems will continue to benefit from these initiatives.
Our proven model does not conclusively show that Community Health Systems is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.
Zacks ESP: Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. This leads to an ESP of -0.81% for the company. as while the Most Accurate estimate for earnings stands at $1.22, the consensus estimate is pegged higher at $1.23.
Zacks Rank: Community Health Systems has a Zacks Rank #3 which increases the predictive power of ESP. However, we need to have a positive ESP to be confident of an earnings surprise.
Note that we caution against stocks with Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies in the broader medical sector that you may consider instead as our model shows they have the right combination of elements to post an earnings beat this quarter.
BioTelemetry, Inc. (BEAT) has an earnings ESP of +20.00% and carries a Zacks Rank #1.
ACADIA Pharmaceuticals Inc. (ACAD) has an earnings ESP of +3.85% and carries a Zacks Rank #2.
Endo International plc (ENDP) has an earnings ESP of +0.89% and carries a Zacks Rank #2.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
ENDO INTL PLC (ENDP): Free Stock Analysis Report
COMMNTY HLTH SY (CYH): Free Stock Analysis Report
BIOTELEMETRY (BEAT): Free Stock Analysis Report
ACADIA PHARMA (ACAD): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
- Investment Company Information
- Community Health Systems