Community Health Systems, Inc.’s CYH subsidiaries recently inked a definite agreement to buy majority stake in two reputed hospitals. Community Health, the nation’s largest hospital operator (in terms of hospital count), will be taking over an 80% stake in IU Health La Porte Hospital in La Porte and IU Health Starke Hospital in northwestern Indiana.
The transaction will take Community Health’s hospital tally to 11 in Indiana. We believe the strategic buyouts will drive the company’s penetration into the healthcare services market, which in turn, will enhance its competitive position as well as drive significant growth.
Over the years, acquisitions have played a key role in building Community Health’s growth trajectory. The company generally targets hospitals that cater to relatively non-urban and suburban communities, where management can add value through specialty medical service expansion, economies of scale, additional investment in new technology, and improved process management.
One of the acquisitions was that of Health Management Associates (HMA), which added 71 hospitals to the company. Community Health aims to realize synergies of at least $275 million from the HMA transaction, of which $125 million was realized in 2014 and an incremental $50 million by the end of second-quarter 2015. Management also expects to gain synergies of approximately $100 million over the rest of 2015.
Apart from accretive acquisitions, Community Health continues to divest hospitals on a regular basis. Management is on track with its planned creation of a new publicly traded company by spinning off 38 of its hospitals and Quorum Health Resources, its hospital management and consulting business. The new entity will be known as Quorum Health Corporation. The transaction is expected to be completed in the first quarter of 2016.
Zacks Rank & Stocks to Consider
Community Health currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the medical sector include Masimo MASI, Steris Plc STE and Exactech EXAC. All the stocks sport a Zacks Rank #1 (Strong Buy).
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