Community Health Systems on Thursday updated its longer-term financial goals to be slightly more ambitious than when they were first unveiled early last year.
The modified targets were part of the Franklin, Tenn.-based hospital chain’s earnings release for the fourth quarter of 2021. The healthcare system first rolled out its “medium-term financial targets” in early 2021 and said he plans to achieve them over the next two to four years.
CHS now expects to achieve an adjusted profit margin – measured as adjusted profit before income, taxes and depreciation – of over 16% over the same period, up from its previous target of over 15%. . The company’s EBITDA margin was 15.9% in 2021, compared to 15.3% in 2020. CHS also said it would continue to generate annual free cash flow, whereas the original target was simply generate free cash flow annually. The company also plans to further reduce its debt ratio. Instead of bringing debt below six times net debt to EBITDA, CHS plans to bring it below five times net debt to EBITDA.
“Over the past year, we have made significant progress on each of these goals,” CHS Chief Financial Officer Kevin Hammons said on the company’s investor call. “As we move forward, we expect to continue to grow EBITDA and EBITDA margin, build annual free cash flow generation and continue to reduce our financial leverage.”
Medium-term targets are different from annual forecasts, which investors will follow more closely. In 2022, CHS projects revenues of $12.6 billion to $13.1 billion. The company generated $12.4 billion in operating revenue in 2021, compared to $11.8 billion in 2020.
Analysts and investors aren’t forcing companies to hit their medium-term goals the way they do with their annual forecasts, said Britton Costa, head of healthcare and pharmaceuticals at Fitch Ratings. They are more of a way for companies to tell the story of where they expect to go.
“When you think of Community, it’s really a company that has gone through a really big transformation over the last couple of years,” Costa said. “They have changed the size of the business, the direction of the business and therefore the way the capitalization and the natural profile of the business has changed. This indicates continued confidence that they have not yet finished. There are still more improvements to come at the company.”
In 2020, CHS concluded a multi-year effort to sell underperforming hospitals. There are signs that the program has strengthened business results.
CHS net income fell 39% year-over-year in 2021 to $368 million. The company’s revenue rose 5% during that period, while expenses rose 2.8% to just under $11 billion.