Analysts Abandon Community Health Systems Bullish Case

Community Health Systems Inc. (NYSE: CYH) spooked investors badly enough that all hospital stocks were running in the red on Tuesday. The company complained about a weak flu season, bad debts rising and lower than expected patient volume in former HMA markets. There is even a delayed spin-off here.

Community Health Systems was among the worst performing stocks on Tuesday, with shares down about 26% on last look. 24/7 Wall St. wanted to see what some of the Community Health Systems’ stock analysts had to say about the move. As you can imagine, it wasn’t very complementary.

The first downgrade was brutal. Jefferies was the first call seen on Tuesday, a downgrade to Hold, but with the price target slashed and burned to $18 from $83. Ouch. Jefferies said that the company’s series of earnings misses will make it difficult for investors to fully trust management’s EBITDA guidance. The report further said:

Compounding this overhang is a general aversion toward levered names in the current market environment and a broad-based correction in hospital valuations that we believe will prevent Community Health shares from bouncing back meaningfully near-term.

[recirclink id=314960]
Bank of America Merrill Lynch has a Neutral rating and lowered its EBITDA estimates and price objective. The firm cut its 2016 and 2017 EBITDA estimates but increasing 2016 and 2017 earnings per share (EPS) (to $3.49 to $3.91 from $3.43 to $3.86, respectively) on below the line items. It introduced a 2018 EPS estimate of $4.38. The firm lowered its price objective to $17 from $31 on lower EBITDA but remained Neutral, as it sees value in the pending Quorum spin-off.

Mizuho lowered Community Health’s rating to Underperform from Neutral and cut its target to $14.50 from $21.00.

Avondale Partners downgraded its rating to Market Perform and now has only an $18.00 price target.

The prior consensus analyst target was $35.77, but that may have been skewed because of that incredibly high $83.00 price target from Jefferies. That was by far the highest target, and there being about 20 analysts, will lower the consensus target handily after the dust settles.

Community Health Systems stock down was 25.4% at $13.94, on more than 19 million shares traded, at last look. The average volume is only about 3 million shares, and the 52-week range is now $12.86 (hit on Tuesday) to $65.00.