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Here's Why Community Health Systems Stock Is Crashing 14.9% Today

By Todd Campbell – Updated Feb 24, 2020 at 12:46PM

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Nevada's caucus results have investors nervous about the hospital and urgent care provider's future.

What happened

Community Health Systems (CYH -5.05%) shares are down 14.9% at 11:30 a.m. EST on Monday following Bernie Sanders' win in Nevada's Democratic caucus on Saturday.

So what

The hospital and outpatient facilities provider is in the midst of a restructuring to reduce its exposure to unprofitable facilities and debt. Progress on its plans resulted in fourth-quarter financial results that were encouraging, causing a rapid run-up in the company's share price this month that may be contributing to profit-taking today after Bernie Sanders' victory in Nevada.

A man sits with his head in his hands in front of a wall showing a declining stock price.

Image source: Getty Images.

Sanders leads with 35 delegates overall so far, 11 delegates higher than Pete Buttigieg, who is in second place. While Buttigieg plans to reform healthcare by providing a not-for-profit health insurance alternative to existing insurance plans, Sanders proposes Medicare for All, a system that would replace existing insurance plans altogether. Because Sanders' plan dismantles the existing system for healthcare payments, his lead so far creates uncertainty regarding how healthcare providers, including hospitals, outpatient facilities, and physician groups, will be reimbursed in the future if he wins the presidency.

Changes to reimbursement could be significant to Community Health. As a refresher, its revenue slipped 5% year over year to $3.3 billion last quarter but surpassed industry watchers' estimates for $3.18 billion in revenue. Under generally accepted accounting principles (GAAP), its net loss in the quarter was $373 million, or $3.27 per share, but after adjusting for one-time events, non-GAAP EPS was $0.40, significantly better than analysts' projected $0.46-per-share loss.

Now what

In 2020, revenue is forecast to be $12.4 billion to $12.8 billion, resulting in a GAAP net loss of between $1.30 and $0.60 per share. Management anticipates same-facility adjusted admissions will improve 1.5% to 2.5% from 2019 and adjusted EBITDA will be between $1.65 billion and $1.80 billion. 

The expected same-facility growth and EBITDA figures are encouraging because they suggest management's plan to divest non-performing facilities will pay off. However, the upcoming presidential election poses a risk. During Community Health's recent earnings conference call, CEO Wayne T. Smith warned, "The outcome of the election could significantly alter the future prospects for Community Health."

Given that the company still has work to do on its restructuring and is facing political uncertainty, investors may want to consider other investment ideas. 

Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned.The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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