Community Health Systems, Inc. (CYH - Free Report) has inked a deal to sell Bayfront Health Dade City hospital in Florida, and its associated assets to the subsidiaries of Adventist Health System. The transaction of the 120-bed hospital is subject to customary regulatory approvals and closing conditions. The deal is expected to close in the first quarter of 2018.
Community Health continues to divest hospitals on a regular basis. Shedding non-core units helps it focus on its core business that comprises large hospitals. This, in turn, promises higher returns. In the first nine months of 2017, the company completed the spin-off of Quorum Health Corporation, sold Florida, Weatherford and Texas hospitals to HCA Holdings and completed the divestiture of Clarksdale, MS hospital.
Community Health Systems was burdened with high level of long-term debt. The company has used funds from recent divestitures to pay off debts and focus on a more sustainable portfolio of hospitals and networks. Consequently the debt level has started declining since 2016. During the first nine months of 2017, it fell 6% year over year. Management expects long-term debt to be approximately $12.9 billion at the end of 2017, reflecting a 14% decline from 2016.
Consequently, with a fall in the debt level due to strategic divestitures, interest expenses have followed a downward trend since 2016. In the first nine months of 2017, borrowing costs witnessed a 3.3% year-over-year decline. This trend is likely to favor the margins going forward.
However, the divestitures have negatively impacted the company’s top line. Since 2012, revenues have been declining owing to lower admissions caused by reduction in the number of hospitals. In the first nine months of 2017, admissions fell 12.3% year over year. This also has put pressure on operating revenues which fell 14% year over year to $12.3 billion.
This continuous decline in revenues has hurt shareholders’ confidence in the stock. In a year’s time, its shares have lost 28.5% while the Zacks Medical - Hospital industry rallied 1.8%. However, as part of its restructuring plan, the company intends to take up certain corrective measures in order to improve top line.
Zacks Rank & Stocks to Consider
Community Health presently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Investors interested in the Medical sector can consider some stocks like Triple-S Management Corporation (GTS - Free Report) , Centene Corporation (CNC - Free Report) and The Joint Corp. (JYNT - Free Report) . While Triple-S Management sports a Zacks Rank #1, the other two stocks carry a Zacks Rank #2 (Buy).
Triple-S Management delivered positive surprises in two of the last four quarters, with an average beat of 74%.
Centene delivered positive surprises in each of the last four quarters with an average beat of 10.6%. Its shares have returned 66.2% year to date, beating the industry mark.
Joint Corp delivered positive surprises in three of the last four quarters, with an average beat of 5.5%.
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