Community Health Divests Hospitals To Reduce Debt Level

Community Health Systems, Inc. (NYSE:CYH) has completed the previously announced divestiture of three Virginia hospitals — 300-bed Southside Regional Medical Center in Petersburg, 105-bed Southampton Memorial Hospital in Franklin and 80-bed Southern (NYSE:SO) Virginia Regional Medical Center in Emporia — and their associated assets to subsidiaries of Bon Secours Mercy Health, Inc. The deal was effective Jan 1, 2020.

The move is in-line with Community Health’s strategy to focus on its core businesses that comprise large hospitals. Notably, in 2017 and 2018, the company sold hospitals worth $1.7 billion and $405 million, respectively. Continuing the trend, Community Health sold 11 hospitals in the first nine months of 2019. These transactions are likely to boost the same-store metrics and cash flow of the company, while lowering debt and reducing leverage ratios.

Debt Woes

Community Health is burdened with debt and has therefore taken the portfolio rationalization strategy. All these sell-offs are part of the company’s massive debt-restructuring initiative to help its highly leveraged balance sheet.

Although the company’s debt level reduced from $16.6 billion in 2014 to $13.5 in 2018, the level is still very high. Additionally, doubts surrounding its ability to cover interest expenses persist. The times interest earned ratio for the company, which measures its interest paying ability, stands at 0.3%, comparing unfavorably with the industry’s average of 2.9%.

Investors lost confidence in the company, which resulted in the free fall in its share price and a 95% decline in market capitalization from $6.2 billion recorded in 2014 to $0.3 billion now.

One of its peers, Tenet Healthcare Corp. (NYSE:THC) has also been shedding some of its non-core and unprofitable facilities from its business portfolio to repay debt and maintain financial liquidity.

In a year, the Zacks Rank #3 (Hold) company has lost 7.7% against its industry's growth of 25.4%. This performance looks pale when compared to the price performance of its peers, HCA Healthcare, Inc. (NYSE:HCA) and Universal Health Services, Inc. (NYSE:UHS) , which have returned 21.4% and 22.2% over the same time frame.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

7 Best Stocks for the Next 30 Days

Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers “Most Likely for Early Price Pops.”

Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.6% per year. So be sure to give these hand-picked 7 your immediate attention.

See 7 handpicked stocks now >>