As hospital investors ache for a suitor like the one HCA ( HCA) got, Community Health Systems ( CYH) is standing on its own two feet. Over time, Community has built itself into the largest and most successful for-profit rural hospital chain in the country. After HCA goes private, in fact, Community will operate more acute-care hospitals than any other publicly traded company. Unlike so many of its peers, Community has managed to meet Wall Street targets through even the roughest of times. The company is expected to continue that streak when it reports second-quarter results after the market closes on Wednesday. Community is expected to post an 8.2% profit rise on a 13% jump in revenue, despite the bad debt and reimbursement woes holding down numbers across the industry. On average, analysts are looking for the company to make 53 cents a share on sales of $1.04 billion. Community has long relied on a proven formula for success. The company likes to acquire struggling rural hospitals -- which often monopolize their markets -- and then turn those facilities around. In contrast, HCA, for one, has focused on urban markets that can be especially susceptible to negative industry trends like weak patient admissions and bad debt from the uninsured. Meanwhile, competing rural hospital chains Health Management Associates ( HMA) and LifePoint ( LPNT) have suffered from misguided acquisitions. Just this week, for example, HMA reported an 11% drop in earnings that could not be explained by the absence of year-ago insurance recoveries. Rather, same-hospital admissions slid during the quarter, while uninsured volumes rose, eating away at the industry-leading margins that the company has enjoyed for so long. HMA once ranked as perhaps Wall Street's favorite hospital operator. However, the company has steadily lost support after straying from its rural hospital roots and acquiring high-priced facilities in larger markets in a tough industry environment. By comparison, Community looks like a hospital company that knows exactly how to operate. Thus, even some cautious hospital analysts like the company whether it attracts a buyer or not.
"Community Health Systems is probably too richly valued for a buyout, but still remains undervalued, in our opinion," Stifel Nicolaus analyst Robert Hawkins wrote last week. Meanwhile, the company "should produce consistent results for the next few quarters, despite fundamental problems in the sector." When launching coverage of the hospital industry this month, Hawkins portrayed Community as the "top operator" in the group. He has a buy recommendation and a $42 target price on the company's stock. His firm has no business relationship with the company. Community's stock slid 2 cents to $37.11 on Tuesday. The shares posted industry-leading gains last year, peaking at $40.72 in December, but have failed to take part in any buyout-triggered rally.
Today, Community boasts a market capitalization of $3.7 billion. Smith's 1.7% stake in the company is worth nearly $65 million. Smith last year collected $2.85 million in salary and bonuses to boot.