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Community Health to Sell Unit for Streamlining Operations

Zacks Equity Research

Community Health Systems, Inc. CYH has entered into a definitive agreement to divest 245-bed Tennova Healthcare - Lebanon in Lebanon, TN and its related assets to the subsidiaries of Vanderbilt University Medical Center. The deal is expected to complete in the third quarter of 2019. However, it is subject to certain closing conditions.

This move is in-line with the company’s strategy, which helps it focus on its core businessesthat comprise large hospitals. Community Health continues to divest hospitals on a regular basis. As part of its ongoing portfolio rationalization efforts, the company sold 30 hospitals in 2017 for $1.7 billion. In 2018, it sold an additional 11 hospitals for total net proceeds of $405 million. In March 2019, the company already completed the sale of four South Carolina Hospitals, namely 82-bed Chester Regional Medical Center in Chester, 225-bed Springs Memorial Hospital in Lancaster, 396-bed Carolinas Hospital System in Florence and 124-bed Carolinas Hospital System -Marion in Mullins along with related businesses.

The company is burdened with long-term debt and therefore this portfolio rationalization strategy is a way to deleverage its balance sheet strategy. Despite using funds from the divestitures to clear its debt, the company’s debt to capital ratio has been deteriorating over the past few years. To lower its debt level further, we expect the company to take up more divestments going forward.

Community Health also expects same-store metrics and cash flow to improve on the back of its sale of hospitals. The sale of units will also lead to lower leverage ratios. Further, these deals are allowing the company to take up other investments in most attractive markets, thus promising a better return on capital.

One of its peers, Tenet Healthcare Corp.  THC, also shed some of its non-core and unprofitable facilities in order to repay its debt and maintain financial liquidity. The company’s strategic priorities include completing the hospital divestitures and allocating capital to higher return investments inthe capital structure.

Shares of this Zacks Rank #2 (Buy) company have inched up nearly 0.2% in a year’s time, underperforming its industry’s rise of 22%.


Other Stocks to Consider

Investors interested in the medical sector can also take a look at some other top-ranked stocks like Anthem Inc ANTM and WellCare Health Plans, Inc. WCG, each carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Anthem and subsidiaries operate as a health benefits company in the United States.  In the last four quarters, the company delivered average beat of 7.1%.

WellCare Health offers managed care services to government-sponsored health care programs. The company pulled off average positive surprise of 15.43% in the preceding four quarters.

 

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