Barclays: Community Health Stock Worst of Sector

Barclays sees near-term pressure ahead for hospital operators, especially CYH

Patrick Martin
Aug 14, 2018 at 10:23 AM
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This morning, an analyst at Barclays initiated coverage on a slew of hospital operators. HCA Healthcare Inc (HCA) scored the most bullish rating, while sector peer Community Health Systems (NYSE:CYH) was given the worst among the bunch: an "underweight rating" and meager $3 price target. The analyst in coverage believes the entire sector is under pressure from payment models that focus on lower-cost sites of care.

Looking at CYH, the healthcare name is down 1.2% to trade at $3.11 today. It's been a brutal year for Community Health stock, defined by a channel of highs and lower lows that culminated in a record low of $2.66 on July 17. Breakout attempts have been thwarted by the shares' 160-day moving average, and more recent resistance was encountered at their 40-day trendline. Overall, CYH has lost more than half its value in the last 12 months, no thanks to Amazon's foray into healthcare

Short sellers are likely cheering today's dip. Although short interest fell by 9.2% in the most recent reporting period, the 31.38 million shares sold short represents a whopping 31% of CYH's total available float, 9.3 times the average daily trading volume. 

In the options pits, puts are dominant, despite light absolute volume and limited downside room, with CYH in the low single digits. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows 1,285 puts bought to open in the past 10 days, compared to just 62 calls. The resultant call/put volume ratio of 20.73 ranks 3 percentage points from an annual high, indicating puts have been bought over calls at a much faster-than-usual clip during the past two weeks.

Traders looking to speculate on CYH may want to do so with near-term options, which are attractively priced at the moment. CYH stock currently sports a Schaeffer's Volatility Index (SVI) of 66%, which ranks in the 10th percentile of its annual range. This suggests that near-term options are pricing in relatively low volatility expectations at the moment, which could help maximize the benefit of leverage for premium buyers.


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