Community Health Looks Strong

The hospital operator ducks some of the nasty bugs going around the industry.
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Community Health

(CYH) - Get Report

is looking strong.

With patient admissions rising and bad debt from the uninsured stabilizing, the rural hospital operator on Thursday managed to blow past Wall Street expectations for the second quarter. Revenue jumped 19% to $919 million, easily topping the $899 million consensus estimate. Moreover, operating profits rocketed 29% to 49 cents a share, beating analyst forecasts by 4 cents.

"Community Health Systems delivered a very solid financial and operating performance for the second quarter of 2005," said CEO Wayne Smith. "Our strong revenue and volume trends through the first half of 2005 validate the strength of our operating model, and we are very pleased with the trends in our business."

During the latest period, the company's total admissions jumped 8.8% with help from recent acquisitions. Same-store admissions grew at a far more tepid pace of 0.3% -- or 1.3% when adjusted for outpatient cases -- but still pushed same-store operating revenue 9.3% higher in the end.

Meanwhile, bad debt from the uninsured barely budged, inching up from 9.9% to 10% of revenue in the latest period. Thus, the company seemed to escape much of the pain being felt by more urban hospital operators like

HCA

(HCA) - Get Report

and

Universal

(UHS) - Get Report

.

Despite a warning from HCA and a stunning surprise from Universal -- which whacked 8.4% from the company's share price on Thursday -- some analysts were still looking for good news from Community.

Jason Gurda of Bear Stearns accurately predicted that both the company's revenue and its profits would top consensus estimates. He also looked for a "healthy" 2% jump in same-store admissions that failed to materialize but did see his expectations for positive pricing trends materialize. Perhaps more important, however, was his optimistic call on bad debt.

"CYH has been one of the first hospital companies to indicate that uninsured volume growth had stabilized," he wrote, "which should keep bad-debt expense stable in our view."

Still, Gurda has maintained his peer-perform rating on the stock because he believes the shares are fairly valued already. But Ryan Beck analyst Robert Mains -- who has an outperform rating on the stock -- sees better days ahead for both the company and the industry overall.

"Our secular view of the hospital management companies is that volume growth will remain cyclically weak until later this year or early 2006," he wrote, "but this trend will be overcome by strong pricing and margins, enabling Community to meet or exceed our earnings estimates."

Community's stock slipped 13 cents to $35.23 ahead of the company's second-quarter report.