CHS Forecasts Higher Earnings, Lower Debt Ratio

On Thursday, Community Health Systems updated its long-term financial targets, making them slightly more ambitious than when they were originally unveiled early last year.

The revised targets were part of the Franklin, Tennessee hospital chain’s fourth-quarter 2021 earnings report. The health system has unveiled its “medium-term financial targets” for the first time. at the beginning of 2021 and stated that he planned to achieve them within the next two to four years.

CHS now aims to achieve an adjusted earnings margin, measured as adjusted earnings before income, taxes, depreciation and amortization, of more than 16% over the same time period, compared to the previous target of more than 15%. The company’s EBITDA margin was 15.9% in 2021 compared to 15.3% in 2020. CHS also stated that it will continue to generate annual free cash flow, while the original goal was simply to generate free cash flow annually. The company also plans to further reduce its debt ratio. Instead of taking leverage below six times net debt/EBITDA, CHS plans to bring it below five times net debt/EBITDA.

“Over the past year, we have made significant progress towards each of these goals,” said Kevin Hammons, chief financial officer of CHS, in a call with investors. “As we move forward, we expect further growth in EBITDA and EBITDA margins, generating annual free cash flow and further reducing our financial leverage.”

Medium-term targets are different from annual targets, which investors will watch more closely. In 2022, CHS expects revenue of between $12.6 billion and $13.1 billion. The company’s 2021 operating revenue was $12.4 billion, up from $11.8 billion in 2020.

Analysts and investors don’t tie companies to their medium-term goals as much as they do to annual forecasts, said Britton Costa, Fitch Ratings’ head of healthcare and pharmaceuticals. It’s more of a way for companies to tell a story about what they expect to achieve.

“When we think about Community, this is a company that has gone through a significant transformation over the last couple of years,” Costa said. “They changed the size of the company, the focus of the company, and by extension, how the capitalization and natural profile of the company changed. This indicates a constant belief that they are not finished yet. company.”

In 2020, CHS completed a multi-year effort to sell underperforming hospitals. There are indications that the program has bolstered the company’s bottom line.

CHS net income fell 39% year-on-year in 2021 to $368 million. The company’s revenue during this time increased by 5%, while expenses rose by 2.8% to just under $11 billion.