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Community Health Sells 2 Texas Units, Streamlines Business

Community Health Systems, Inc.’s CYH subsidiaries have sold their ownership interest in two Texas hospitals and their associated assets to subsidiaries of HCA Healthcare Inc. HCA. The units divested include a 350-bed Tomball Regional Medical Center in Tomball and a 67-bed South Texas Regional Medical Center in Jourdanton.

The company is burdened with long-term debt and has therefore implemented portfolio rationalization and a deleveraging strategy by divesting hospitals and non-hospital businesses. Generally, these business lines are not in one of the company’s strategically beneficial service areas, are less complementary to its business strategy and have lower operating margin.

Significant divestitures and a consequent decrease in debt level have helped the company to gain investors’ faith as evident by its stock price increase of 78% year to date compared with the gain of 18% for the Zacks categorized Medical-Hospital industry.

The two hospitals sold recently are part of the 30 planned hospital divestitures discussed on the company’s first-quarter 2017 earnings call. This divestiture plan accounts for approximately $3.4 billion of annual revenue and mid-single digit EBITDA margins. Estimated gross proceeds from these divestitures including working capital are projected at $2 billion.

Community Health expects the transaction for these hospitals to close during the first nine months of 2017. This business restructuring will reduce the number of divisions to four and improve the company’s overall efficiency.

Along with improving its debt-EBITDA ratio, Community Health is working to reduce its overall debt. Its current divestiture plan will allow the company to move to a portfolio of hospitals that are better positioned to drive volume growth, EBITDA margin and cash flow. It will also allow the company to direct future investments to the most attractive markets and regional networks that provide a higher return on capital.

Another player in the same industry, Tenet Healthcare Corporation THC, recently inked a deal with Amedisys, Inc. AMED to divest its Home Health and Hospice operations in Arizona, Illinois, Massachusetts and Texas.

Community Health carries a Zacks Rank #3 (Hold). You can see _1link">the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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