Community Health Systems stock garners investor interest

Franklin, Tenn.-based hospital giant Community Health Systems (CHS) Inc. is a high-conviction stock at Snow Capital Management L.P., according to Nathan Snyder, chief operating officer of the Sewickley, Pa.-based fund manager. (As of Dec. 31, 2009, the Snow Capital Opportunity Fund held CHS shares totaling 3.37 percent.)

Demographic trends should drive above-average healthcare services growth, which should result in increased admissions and higher revenues, says Snyder. CHS should be able to boost internal growth with acquisitions. "The company has had much success buying and integrating facilities, including the 2007 purchase of Triad Healthcare. Industry sources indicate that merger and acquisition activity is on the rise as an increasing number of facilities are facing rising costs and lower revenue during the recession. We believe that Community Health has the balance sheet to grow their business and continue to reduce operating costs in an environment where many hospitals nationwide are struggling."

Hospitals could reduce bad debt exposure via passage of a health reform bill that expands the base of insured patients, but if that doesn't happen, economic recovery should provide some relief. "Bad debt expense historically represents between 12 and 16 percent of hospital operating costs on average. Any reduction in this expense will have an immediate and significant impact on hospital earnings," says Snyder.

CHS also has market share opportunities, being the only healthcare provider in 65 percent of its markets but holding an average per-market share of just 50 percent. "The company has an opportunity to grow market share by offering more services to patients who are currently traveling to larger markets for treatment. To this end, the company has an aggressive physician recruiting program," says Snyder.

To learn more about Snow Capital's assessment:
- read the Seeking Alpha blog post

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