Analysts defend CHS, help limit damage

UPDATE: After starting to fade around noon Central, CHS shares (Ticker: CYH) were down almost 10 percent at 1:45 p.m.

A number of Wall Street analysts have come to the defense of Community Health Systems after the local hospital chain issued a second-quarter earnings warning and said it has been subpoenaed a second time by government investigators looking into its Medicare admissions practices.

The analysts’ words of moderation have helped limit the losses for CHS shares, which fell more than 17 percent after hours Thursday. As about 10:40 a.m., CHS (Ticker: CYH) was off 8.3 percent to $43.37. Volume was very heavy, with 5.3 million changing hands in less than two hours. The stock’s daily average is 1.1 million shares.

Here’s an overview of some of the commentary from analysts this morning:

• Gary Lieberman at Wells Fargo Securities pointed out that, despite the Q2 profit warning, the company didn’t cut its implied guidance for the second half of the year and advised investors to “use any sustained weakness in the stock as a buying opportunity, all else equal.”

Speaking to the Department of Justice’s investigation, Lieberman thinks the second subpoena doesn’t change the path of the process but is more about detailing CHS’ responses to the government’s questions to date.

• Similarly, Morgan Stanley analysts say the bad news from Thursday evening “is more than fully reflected” in the shares of CHS.

• Kevin Fischbeck at Bank of America Merrill Lynch says the guidance cut and subpoena news aren’t as bad as they look. He has reiterated his ‘buy’ recommendation.

• Deutsche’s Darren Lehrich reiterated his ‘buy’ rating and $59 price target, citing the company’s strong long-term track record. But he is more cautious about the fact that the DOJ’s investigation appears to be getting broader and that the agency wants to speak specifically to a CHS division president and a corporate senior vice president.

“These revelations lead us to believe that the government investigation is gaining momentum and expanding, thus making a path to settlement over this CY look more elusive,” Lehrich wrote.

• At Credit Suisse, Ralph Giacobbe has the harshest reaction we’ve seen so far, cutting his price target for CHS to $50 from $61. He says the Street had priced in lower bad debt expenses as the Affordable Care Act took hold.