Community Health (CYH) Numbers Lowered at Susquehanna; Positive Rating Maintained

Susquehanna analyst Chris Rigg lowered his price target on Community Health (NYSE: CYH) to $10.00 (from $18.00) but maintained a Positive rating following Q3 results.

Rigg noted the following highlights:

The rationale for our Positive rating hasn’t changed since we upgraded the stock in September — our constructive rating is predicated on CYH executing its portfolio rationalization/de-leveraging strategy. Clearly, there are risks to our view, and CYH’s equity value could continue to diminish if EBITDA does not begin to trend for the better, particularly given that the cushions on CYH’s senior secured leverage ratio and interest coverage ratio covenants are 7% and 27%, respectively, based on trailing 12-month adjusted EBITDA.

• For 2017, our revised model includes management’s expected sales of the 17 hospitals. Note we typically do not prospectively model acquisitions and/or divestitures, but given how CYH’s management is issuing guidance for the year and their certainty in how they are repositioning their hospital portfolio, we have opted to take this approach. By way of background, CYH now intends to divest 17 hospitals (up from 12 previously) and complete a non-hospital real estate transaction as well as the previously announced home health JV. The 17 facilities generate annualized revenue of $2.0 bln, with mid-single-digit margins. Management expects these transactions will generate proceeds of $1.2 bln and expect them to close by mid-2017.
• By way of background, Community reported 3Q16 adjusted EBITDA of $465 mln, which was in line with results previewed on October 27. The company lowered its 2016 adjusted EBITDA outlook by $238 mln at the midpoint to $2,200-$2,275 mln from $2,400-$2,550 mln, previously.

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 $5.14 yesterday.

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