Community Health Systems, Inc. (CYH - Analyst Report) announced that it has signed a definitive agreement for the sale of four hospitals and their associated assets to subsidiaries of Curae Health, Inc. Facilities included in the transaction are 95-bed Merit Health Gilmore Memorial in Amory, MS, 112-bed Merit Health Batesville in Batesville, MS, 181-bed Merit Health Northwest Mississippi in Clarksdale, MS and 126-bed Highlands Regional Medical Center in Sebring, FL. The proceeds from the transaction would mainly be used to pay down debt. The transaction is expected to close in the fourth quarter of 2016.
The company's high debt level, uncertainty over regulatory reforms and revenue concentration remain its major concerns in the near term. Community Health’s balance sheet is highly leveraged. As of Jun 30, 2016, total debt was $15.36 billion. Such high debt may limit the company’s future expansion and worsen its risk profile. Higher interest expense on debt is also expected to impact its profits going forward.
In April, Community Health completed the spin-off of Quorum Health Corporation , comprising 38 affiliated hospitals and related outpatient services in 16 states, together with Quorum Health Resources. It is a subsidiary providing management advisory and consulting services to non-affiliated hospitals.
Post Quorum spin-off, the company is now planning to sell another batch of hospitals by the end of this year, which will not only help in paying off debt but also in driving investments. Nevertheless, we believe that Community Health is well positioned to benefit from The Patient Protection and Affordable Care Act (ACA). Medicaid program expansions and synergies from the Health Management Associates (HMA) acquisition are the key catalysts. We also believe that strategic buyouts will drive the company’s penetration into the healthcare services market, which in turn, will enhance its competitive position as well as lead to significant growth. However, inconsistent results and growing execution fears are its primary headwinds.
Franklin, TN based Community Health Systems is one of the largest publicly traded hospital companies in the US. It is also a leading operator of general acute care hospitals across the country. The company, through its subsidiaries, owns, leases or operates 158 affiliated hospitals in 22 states with an aggregate of nearly 27,000 licensed beds.
Zacks Rank & Key Picks
Community Health carries a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the broader medical sector are Lantheus Holdings Inc. (LNTH - Snapshot Report) and Quidel Corp. (QDEL - Snapshot Report) . Notably, both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Lantheus Holdings posted a stupendous year-to-date return of 143.4%. Notably, the company expects earnings growth rate of 12.5% over the next 3 to 5 years.
Quidel Corp. has a positive year-to-date return of 2.9%. The stock has a healthy expected earnings growth rate of 20%.
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