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Community Health System Divests Hospitals to Lower Debts

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Community Health Systems, Inc.’s (CYH - Free Report) subsidiaries have closed the sale of two Washington hospitals and their associated assets to Regional Health. These divestitures are part of the company’s plans of selling 30 hospitals and generating funds to minimize its debt level. The hospitals divested were Yakima Regional Medical & Cardiac Center in Yakima and Toppenish Community Hospital in Toppenish. 
 
A long-term softening in admissions has hit hospital companies. Community Health Systems is burdened with high level of long-term debt. Naturally, the company is taking resort to divestures to pay off its debts and focus on a more sustainable portfolio of hospitals and networks. Community Health Systems aims to reduce its debts by 2018. As of Jul 7, 2017 the company’s long-term debts stood at $14.25 billion.
 
In the second quarter, Community Health Systems received $1.147 billion from the sale of its 20 hospitals. The company utilized $951 million from the sale proceeds to pay off its term loans.  
 
Earlier, Community Health Systems had shown interest in divesting 30 of its hospitals, on which it had incurred comparatively lower bad-debt expense. The divestitures are estimated to generate $1.95 billion in proceeds.  In fact, the company announced that it would expand its divestiture program. It is planning to divest hospitals that account for at least $1.5 billion of net revenues and mid-single-digit EBITDA margins. Community Health Systems wants to focus on those hospitals that may generate volume growth, higher EBITDA margin, and better cash flow.
 
The company has been aggressively divesting its assets, in a quest to reduce its long-term debts. In July 2017, the company entered into an agreement with HCA Healthcare, Inc. (HCA - Free Report) to sell the Weatherford Regional Medical Center in Texas. We expect these divestitures to help the company lower its debt burden.
 
Zacks Rank and Share Price Movement
 
Currently, Community Health Systems carries a Zacks Rank #5 (Strong Sell). Shares of Community Health have gained 36.67% year to date, outperforming the industry's  gain of 4.65%. We expect the company’s portfolio restructuring to drive the shares. 
 
 
Stocks to Consider
 
A few better-ranked stocks from the hospital industry are Edward Lifesciences Corporation (EW - Free Report) and EnteroMedics Inc. (ETRM - Free Report) , each sporting a Zacks Rank #1 (Strong Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

Edward Lifesciences Corporation provides products and technologies to treat structural heart disease and critically ill patients worldwide. The company delivered a positive earnings surprise in each of the last four quarters, with an average beat of 10.75%.

EnteroMedics develops devices to treat obesity, metabolic diseases, and other gastrointestinal disorders. The company delivered a positive earnings surprise in three of the last four quarters, the average beat being 55.81%. 
 

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