Health Management Associates (HMA), a leading operator of general acute care hospitals, recently revealed that its subsidiaries had accomplished a deal to enter into a joint venture with five Integris Health hospitals in Oklahoma. As per the deal, the company will hold an 80% controlling stake in the hospital system while managing their daily functioning. The deal went into effect on April 1, 2012.
The five hospitals have 226 authorized beds. Integris produced about $95 million of net sales in the prior 12 months. Moreover, its facilities may be quite accessible for 6 out of 10 Oklahoma residents.
Health Management runs hospitals in select non-urban markets, mostly in south eastern U.S. The company continues to emphasize its three long-standing initiatives, namely Emergency Room operations, physician recruitment and market development, which have facilitated admissions. We are relieved that bad debt is no longer an area of looming concern.
The company is an active acquirer of underperforming hospitals with a turnaround potential in high-growth markets. Health Management’s competitors, in niche markets, include Community Health Systems (CYH) and LifepointHospitals (LPNT).
Health Management benefits from a gradual growth in admissions. Moreover, it is well placed to expand margins from continuing operations and drive above-industry average earnings growth.
Though the debt burden remains sizeable, we take cognizance of the company’s free cash flow, which provides some safety as per its category. The company has indicated its willingness to deploy free cash flow for acquisitions. Currently we are Neutral on Health Management, which is backed by a Zacks #3 Rank (“Hold”).
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