Avondale: Cost-cutting, reform can drive 2014 margin growth at CHS

Local Avondale Partners analyst Kevin Campbell has officially begun covering shares of Community Health Systems, putting them at 'market outperform' and saying they can climb to $52 from their current $42 or so. One of the big drivers in the coming year, he writes, is the pending acquisition of Health Management Associates and several other hospital systems. But Campbell is not yet figuring those deals into his 2014 model. Even so, he adds, there's plenty of upside for CHS in the coming 12 months courtesy of recent cost cuts and the early impact of health reform. Combined, those two factors will do a lot to drive 80 basis points of margin expansion, Campbell writes.

We estimate reform could add approximately $400 million or 3%-3.5% growth on our 13E net revenue estimate once fully phased in. This ignores the potential benefit from increasing volumes from reform but also cost offsets. Our 2015E EBITDA includes a positive impact of approximately $110 million from reform.

CHS shares (Ticker: CYH) were down about 2 percent in early trading Thursday to $41.70. Year to date, they're up about 35 percent.