Wall Street analysts are weighing in on Community Health Systems (NYSE:CYH) and Groupon Inc (NASDAQ:GRPN), as the stocks tumbled sharply in the wake of disappointing earnings reports. Let’s take a closer look:
Community Health Systems
Community Health shares are suffering heavy losses Thursday, after the hospital operator reported weak preliminary third-quarter results, with the adjusted EBITDA of $465 million well below the consensus and estimate driven by lower margins. Moreover, the company cut its full-year projection, projecting $2.2 billion to $2.28 billion in adjusted EBITDA, down from $2.4 billion to $2.55 billion.
In reaction, Cantor analyst Joseph France reiterated a Hold rating on shares of Community Health, with a price target of $12, which implies an upside of 107% from current levels.
France noted, “CYH is cutting guidance again to reflect divestitures and weak volumes. CYH’s outlook is cut to a loss of $0.35 per share for 3Q16, and its adjusted EBITDA guidance is $465 million, well below the Bloomberg consensus of $570 million. The company’s full year guidance assumes a full year loss of $10.03 and adjusted EBITDA of $2.2-$2.275 billion, but we expect that both numbers could go lower as divestitures continue, particularly if volumes remain weak. The company’s margins are also weak because it is difficult to manage expenses when volumes are down and hospitals are fighting to keep physicians, nurses and patients while it restructures.”
“We believe that CYH is unlikely to find buyers for the entire company and that most of its divestitures will continue to be sales involving a handful of hospitals at a time,” the analyst added.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Joseph France has a yearly average return of 2.2% and a 42% success rate. France is ranked #1210 out of 4188 analysts.
Out of the 20 analysts polled by TipRanks, 2 rate Community Health Systems stock a Buy, 13 rate the stock a Hold and 5 recommend a Sell. With a return potential of 160%, the stock’s consensus target price stands at $15.09.
Groupon investors saw their shares falling nearly 20% today, caused by what Piper Jaffray analyst Samuel Kemp called, “mismatched expectations from investors looking for an out-sized EBITDA guidance raise from mgmt, moderating marketing spend as the company adjusts mixshift towards order discounts, a larger-than-anticipated cut to int’l footprint by exiting LatAm, and the acquisition of LivingSocial.”
However, Kemp said the recent pullback in Groupon shares offer a good entry point for investors. The analyst reiterated an Overweight rating on the stock, with a price target of $6.50, which implies an upside of 54% from current levels.
Kemp commented, “Cutting through the noise to what is important: the company is executing its customer acquisition plan with consistency (+1.2M customers, vs. +1.1M in Q2), narrowing its country footprint to improve focus and profit (LatAm exit to add back $10M in annual EBITDA), and making fundamental improvements to its product offering. All in, we see a clear path to $315M+ EBITDA by 2018 (13% above the Street), which at 8.5x ’18E EBITDA is a highly attractive risk/ reward, in our view.”
“We would be buyers on this pullback cutting through the noise, Groupon’s core strategy to grow customers, narrow focus, and drive EBITDA is firmly intact, in our view,” the analyst concluded.
As usual, we like to include the analyst’s trackrecord when reporting on new analyst notes. According to TipRanks.com, analyst Samuel Kemp has a yearly average return of 11.6% and a 64% success rate. Kemp has a 15.3% average return when recommending GRPN, and is ranked #1038 out of 4188 analysts.
Out of the 13 analysts polled by TipRanks, 3 rate Groupon stock a Buy, 8 rate the stock a Hold and 2 recommend a Sell. With a return potential of nearly 22%, the stock’s consensus target price stands at $5.13