Avondale Moves To Sidelines On Community Health Systems, Lowers Target To $18

• Community Health Systems CYH shares have plummeted 28 percent since February 9.
• Avondale’s Paula Torch downgraded the rating for the company to Market Perform, while reducing the price target to $18.
• The downgrade comes after the company’s inconsistent execution in 2H15 and disappointing 4Q15 results, Torch stated.

Community Health Systems’ execution was inconsistent during the back half of 2015. The company reported its 4Q revenue at $4.798B, representing a decline of 2.4 percent and missing the Avondale estimate by $62M and the consensus forecast by $185M.

Excluding a $169M change in the bad debt provision, Community Health Systems’ 4Q revenue came in at $4.967B, representing 1 percent growth. This was still below consensus. The company’s adj. EPS stood at $0.68, missing the Avondale and consensus estimate of $0.95.

Community Health Systems guided to 2016 topline and adj. EBITDA guidance growth of 2-5 percent and 2-7 percent y/y, respectively, broadly in-line with the Avondale and Street estimates.

The 2016 guidance “appears to have set a lower bar to start the year,” while “inconsistent execution, weaker volumes than anticipated, high debt leverage, and continued weakness in performance at HMA leaves us less bullish,” analyst Paula Torch wrote.

The quality of Community Health Systems’ recent earnings is unlikely to trigger any multiple expansion in the near term and the below-peers valuation seems fair, Torch commented.