NEW BULLISH Plays
Community Health Systems - CYH - close: 63.25 change: +0.59
Stop Loss: 60.95
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 14, 2015
Time Frame: Exit PRIOR to earnings on August 3rd
Average Daily Volume = 1.3 million
New Positions: Yes, see below
The major healthcare stocks have been in rally mode for the last couple of years. That's not true for CYH. The stock peaked in the third quarter of 2014 and spent months consolidating sideways. The situation changed after the recent court ruling on Obamacare.
CYH is in the hospital industry. According to the company,
"Community Health Systems, Inc. is one of the largest publicly-traded hospital companies in the United States and a leading operator of general acute care hospitals in communities across the country. Through its subsidiaries, the Company currently owns, leases or operates 199 affiliated hospitals in 29 states with an aggregate of approximately 30,000 licensed beds. The Company's headquarters are located in Franklin, Tennessee, a suburb south of Nashville."
Looking at CYH's recent earnings history the company has developed a habit of beating the bottom line estimate but missing Wall Street's revenue expectations. The most recent report was May 5th. CYH announced its Q1 results which were $0.85 per share. That beat estimates by 19 cents. Revenues were up +17.6% to $4.91 billion yet that missed the $5.0 billion estimate. CYH's stock initially sold off on this report but a day later investors were buying the dip.
The situation for the healthcare and hospital stocks changed on June 25th. The Supreme Court of the United States voted to uphold subsidies for the Affordable Care Act (a.k.a. Obamacare). Hospital stocks rallied and shares of CYH surged to new all-time highs.
Obamacare should mean more people will have health insurance. That means fewer uninsured people arriving at the hospital. Previously CYH expected 13% of its sales to be written off for bad debts due to uninsured people. That's a huge chunk of money when you consider CYH's annual revenues are more than $5.5 billion. The SCOTUS decision to support the ACA should means millions in profit for CYH as their bad debt write offs decline.
After the SCOTUS decision shares of CYH saw multiple price target upgrades. Currently the point & figure chart is forecasting at $70.00 target. The late June rally produced a move from $55 to $65. Since then CYH has seen a pullback to about $61. This is technically a 38.2% Fibonacci retracement of the rally on the SCOTUS announcement. We see the bounce as a potential entry point. Tonight we're suggesting a trigger to open bullish positions at $63.75. Plan on exiting prior to CYH's earnings on August 3rd.
Trigger @ $63.75
- Suggested Positions -
Buy CYH stock @ $63.75
- (or for more adventurous traders, try this option) -
Buy the AUG $65 CALL (CYH150821C65) current ask $1.75
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike