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From the Ledger-Gazette: “State of Tennessee Treasury Department decreased its stake in shares of Community Health Systems (CHS), Inc. (NYSE: CYH) by 50.6% during the 2nd quarter, according to its most recent 13F filing with the Securities & Exchange Commission. The fund owned 107,398 shares of the company’s stock after selling 110,000 shares during the quarter” (https://ledgergazette.com/…/state-of-tennessee-treasury-dep…)

This, in the second Quarter of 2017 when the share price was, end of June at $10.

CHS CEO, Mr. Wayne Smith had commented in November 2016 that: “First, it goes without saying that we’re not pleased with our performance during the third quarter. Over the years, we’ve seen some variability, but our inconsistent performance recently and in the third quarter simply has not been good enough. Operationally, we’ve experienced a great deal of change over the past few quarters. Assimilation of the HMA hospitals has been more difficult than anticipated.”

This marked a low point as the stock price dipped briefly below $5 and recovered to between $8 and $10 by March 2017. It held that range until July when the price fell once again to reach $6.07 by mid-August and recovered to about $7.68 by the end of September.

The beginning of the fourth quarter 2017, however, is not encouraging. The hospital industry faces headwinds with Federal MACRA programs threatening to decrease inpatient activity and forcing hospitals to accept the lower reimbursements from outpatient work. Tenet Healthcare, whose shares have dropped in price by 70% over the last three years, has been selling hospitals to lower debt and may itself be purchased. Tenet is reported as having difficulty selling some of its hospitals. CHS shares have dropped in October from $7.83 to $6.20 by October 11, presumably due to worry about low earnings and continued high-interest payments on its large remaining debt.

What does this mean? NICHE believes it’s noteworthy that the State of Tennessee sold nearly half of its position in a company with a home office in its capital. If local knowledge contributed to the decision to sell, that is not a vote of confidence in management. No doubt the hurricane damage done to CHS’s Florida properties was a contributing factor, but reports have indicated that damage across the Sunshine State was far less than predicted.

NICHE expects Lutheran Health Network (LHN) to have a weak quarter even allowing for reports that some legal bills were to be pushed into the first quarter of next year. Local staff has said that both July and August were weaker than they expected. LHN’s quarter could look comparatively strong versus CHS’s overall earnings since LHN’s earnings will not be affected by hurricane losses. This is not quite a same-store comparison for LHN, year over year since a new freestanding ER has contributed a measure of admissions to Lutheran Hospital, but the financials should be otherwise much the same. Said Modern Healthcare: “Weak admissions and deteriorating payer mix will mark the rest of 2017…There are fewer people going to the hospital.” And from Seeking Alpha: “Community Health Systems (CYH) stock, like the business, is changing and looking at the extent of the correction over the past few months, the urge to pick the bottom is overwhelming, but the fundamentals seem to suggest that stability may still be far off and the road may not be smooth or easy for this reforming serial acquirer amid the difficult credit markets. The State of Tennessee seems to have made the right call” (https://seekingalpha.com/pro/checkout/3965230?notice=pro).