UPDATE: Susquehanna Sees 67% Upside in Community Health (CYH) and Raises Rating to 'Positive'
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(Updated - September 14, 2016 10:12 AM EDT)
Susquehanna upgraded Community Health (NYSE: CYH) from Neutral to Positive with a price target of $18, implying upside of 67%. Analyst Chris Rigg thinks portfolio rationalization will drive upside.
"Our upgrade is based on a detailed review of CYH’s portfolio at the individual hospital level," Rigg explained. "Company management has already announced plans to sell 12 facilities over the near-term and has suggested additional facility divestitures are likely. Our analysis suggests there are at least another 36 non-network hospitals (for a total of 48 divestible facilities out of the 159-facility portfolio) that generate negative or low margins that could potentially be divested."
The analyst continued, "Although we remain concerned about near-term volatility in financial results, we like the risk/reward profile given the opportunities presented via restructuring the CYH portfolio."
Rigg added, "Our analysis of data provided by AHD suggests that shares can trade in the $25 range, all things being equal, if CYH is able to sell an additional 36 out-of-network loss making and low-EBITDA-margin hospitals. We estimate that the sale of the incremental 36 hospitals can generate ~$1.7 bln in proceeds with only a small reduction to annual EBITDA of $26 mln. We estimate that these asset sales will decrease the company’s leverage ratio to 5.1x from 5.8x currently (pro-forma for $850 mln of expected asset sale proceeds) and drive equity value accretion of ~$14 per share, assuming CYH’s current forward EV/EBITDA valuation holds constant at 6.6x"
Shares of Community Health closed at $10.78 yesterday.
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Create E-mail Alert Related CategoriesAnalyst Comments, Analyst EPS View, Hot Upgrades, Upgrades
Related EntitiesSusquehanna International Group of Companies, Earnings
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