The American Federation of Teachers is poking at the planned combination of Community Health Systems and Health Management Associates, saying it feels there are legal, regulatory and governance questions that need to be answered more completely.
Among the things AFT President Randi Weingarten said her group is concerned about is the role of hedge fund Glenview Capital Management, noting the firm's large stake in both CHS and HMA has it thinking about "the true beneficiaries of the proposed transaction, and the extent to which shareholders, employees, and the patients and communities they serve will be made to pay the long-term price for excessive short-term risk-taking by corporate insiders and controlling shareholders."
Weingarten said she is interested in meeting with the CHS board to talk some more about these topics.
In a letter sent Friday, CHS General Counsel Rachel Seifert said Glenview was not at all involved in the M&A talks, that the investor doesn't qualify as a controlling shareholder and that the union's worries are unfounded. No word on that meeting request...
Veteran hospital analyst Tom Gallucci has moved to FBR Capital Markets, where he has launched coverage of the sector, including local players HCA Holdings, Community Health Systems and LifePoint Hospitals. Of those, Gallucci writes, HCA and CHS are names investors should buy. Of those companies, he sees Franklin-based CHS (Ticker: CYH) offering the greatest upside based on its expected acquisition of rival HMA and the promise of health reform. His target price is $58, 41 percent above Friday's opening price. Gallucci sees HCA (Ticker: HCA) climbing about 20 percent to $53 from its $44 Friday opening. As for LifePoint: Gallucci rates it at 'market perform' and sees it climbing to $55 from $49 and change.
Health Management Associates, the Florida-based hospital chain being acquired by Community Health Systems, says it needs to restate three years worth of federal incentive payments related to its adoption of IT systems after discovering an error in how it certified those systems at 11 of its hospitals. The restatement covers about $31 million — most of which HMA already has repaid the feds — received over two and a half years. The financial fumble should not affect the CHS deal.
Deutsche Bank Securities analyst Darren Lehrich has reiterated his 'hold' rating on shares of Acadia Healthcare following the Franklin company's third-quarter earnings report. But Lehrich also hiked his price target to $44, a dollar and change above where Acadia (Ticker: ACHC) closed Monday trading. At BMO Capital Markets, Jennifer Lynch is a bit more upbeat: She has raised her target to $47 from $40.
Kevin Campbell at Avondale Partners has had to lower his Community Health Systems earnings estimates after the hospital company reported its Q3, which included a $98 million allowance for a possible government settlement. But that same sentiment, Campbell writes, gives him the confidence to up his price target EBITDA multiple to 7x from 6.7x. He says that multiple should hold for at least a year and, as a result, his new target for CHS is $58, up from $52. CHS shares closed Monday up 2.5 percent (Ticker: CYH) at $43.79 and have risen more than 40 percent so far this year.
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.
Deutsche Bank analyst Darren Lehrich on Monday gave hospital stocks a boost, lifting his price targets on the industry's major players. Lehrich has hiked his target for sector leader HCA Holdings to $56 from $46, which gives investors an upside of more than 22 percent. He now expects Community Health Systems to climb to $62 versus his previous $60 target — leaving some 40 percent of upside — and LifePoint Hospitals to $55 from $45.