Will Obamacare Hurt Community Health's Earnings?

Next Monday, Community Health Systems (CYH 7.10%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed kneejerk reaction to news that turns out to be exactly the wrong move.

The rise of Obamacare has brought a lot of anxiety to investors in health-care companies, as everyone struggles to figure out the impact of the legislation on various players in the industry. Yet, for hospital operator Community Health, favorable provisions could end up boosting its future prospects. Let's take an early look at what's been happening with Community Health Systems over the past quarter and what we're likely to see in its quarterly report.

Stats on Community Health Systems

Source: Yahoo! Finance.

Will Community Health's earnings grow or fade?
In recent months, analysts have gotten less optimistic about Community Health's earnings prospects, as they've cut about $0.10 per share from estimates for both its just-ended quarter and the full 2013 year. Yet, the stock has still managed to rise strongly, gaining 13% since mid-January.

At first blush, Community Health seemed to be a big beneficiary of Obamacare. Community Health, HCA Holdings, and Tenet Healthcare all stand to gain substantially from having many more patients covered by insurance, reducing their need to offer care to uninsured patients without any realistic hope of reimbursement. In the past month, however, Community Health and its peers have seen their share prices pull back for a variety of reasons, with one analyst arguing that valuations for Community and Tenet shares had risen toward less attractive levels for prospective new investors.

One source of uncertainty may have come from the differing implementations of Medicaid, and other provisions at the state level. For instance, in Arkansas, the state plans to give low-income residents an option to buy subsidized private health insurance through a state exchange. Yet, in many other states, any expansion of Medicaid is seen as politically unacceptable, and the lack of uniformity could pose a big threat to Community Health and other providers that offer care in multiple states.

In Community Health's report, watch for signs of the same pressures that Health Management Associates (NYSE: HMA) reported in cutting its 2013 outlook earlier this month. HMA pointed to weak inpatient services demand, and if that trend holds across the industry, it could pose another obstacle for Community Health to overcome in trying to grow earnings.

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