UPDATE: Susquehanna Sees 67% Upside in Community Health (CYH) and Raises Rating to 'Positive'

September 14, 2016 6:47 AM EDT
Get Alerts CYH Hot Sheet
Price: $10.40 +0.29%

Rating Summary:
    8 Buy, 20 Hold, 4 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 26 | Down: 29 | New: 38
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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"

For an analyst ratings summary and ratings history on Community Health click here. For more ratings news on Community Health click here.

Shares of Community Health closed at $10.78 yesterday.

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