Quorum Health Corp QHC is a recent spin-off from Community Health Systems CYH and comprises 38 rural hospitals, and a management team and board with years of experience in the rural markets.
Avondale Partners’ Paula Torch initiated coverage of Quorum Health with a Market Perform rating and price target of $14.
On The Sidelines
“While non-urban focus decreases its competition, we believe that near-term QHC has a higher hurdle given its debt leverage and need for physician recruitment and increased investments in its markets,” Torch mentioned.
However, the analyst noted that there was opportunity for the company to improve margins fairly quickly, while lowering leverage, if it is successfully able to sell of its underperforming assets and use the proceeds to pay off debt.
“However, we remain on the sidelines as near-term operating results could be lumpy as Management conducts the strategic review of its portfolio and works through the kinks of a newly public company,” Torch stated.
Runway of Opportunity
Quorum Health expects the sale of underperforming hospital to potentially generate $100 million, all of which would be used to improve the balance sheet and repay debt.
Although the company is currently only capturing a third of the admissions in its markets, Torch believes that the company has the potential to capture 45-50 percent of the total admissions, which represents a robust runway for future growth.
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