Shares of Envision Healthcare Holdings Inc (NYSE:EVHC), Community Health Systems (NYSE:CYH), Tenet Healthcare Corp (NYSE:THC), and HCA Holdings Inc (NYSE:HCA) are all falling this morning, for both some of the same reasons, as well as different one. Given the strong volume of activity pushing their shares downward, let’s find out what has the market so bearish on these stocks at the moment.
First a little about ourselves. We’re a finance site that tracks hedge fund sentiment. Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 53 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. a 48.7% gain for the S&P 500 Index (see the details here). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).
Envision Healthcare Holdings Inc (NYSE:EVHC) is off by 30% after reporting third quarter earnings of $0.30 per share on revenues of $1.37 billion, missing estimates by $0.09 and $40 million, respectively. 2015 guidance is weak, with adjusted EBITDA of $600 million-to-$605 million, down from the previous $653 million-to-$665 million, and adjusted earnings per share of around $1.28-to-$1.30, off from the original $1.42-to-$1.50. Volume was a bit lower than expected at EmCare, while employee costs were a bit higher due to the stronger economy. At its current valuation, the stock is attractive, assuming management executes better and keeps a lid on costs.
Of the 730 elite funds we track, 29 owned $1.64 billion worth of the company’s shares (representing 22.30% of the float) on June 30, versus 29 funds and $1.35 billion respectively on March 31. Andreas Halvorsen‘s Viking Global was long 12.3 million shares of Envision Healthcare Holdings Inc (NYSE:EVHC) at the end of June.
Community Health Systems (NYSE:CYH) is down by 28.4% this morning after the company released weak preliminary third quarter results due to weak volumes and lower-than-expected sales due to a deterioration in revenue payor mix. For the quarter, the company expects to realize total revenues of $4.8 billion, adjusted EBITDA of $661 million, and EPS from continuing operations of $0.56. This is a miss compared to analyst expectations of $0.88 in EPS on revenues of $4.99 billion. Same-store admissions declined by 2.1% year-over-year while same-store net revenue per adjusted admission rose by 1% year-over-year. The company is still planning to spin off Quorum Health Corporation in the first quarter of 2016 in a transaction that should help the company grow faster and focus more on controlling costs in its urban operations.
According to our data, hedge funds were bullish on Community Health Systems (NYSE:CYH) in the second quarter. A total of 61 funds reported stakes worth $1.73 billion (accounting for 23.30% of the float) in the previous round of 13F filings, versus 55 funds holding $1.49 billion worth of shares a quarter earlier. Larry Robbins‘ Glenview Capital owned 12.09 million shares at the end of the second quarter. Given the low valuation and the rising number of elderly people in the United States, we like the company long-term, although management needs to execute better.
On the next page, we will analyze why Tenet Healthcare and HCA Holdings are also falling this morning.