Community Health Systems (CYH), Health Management Associates Inc (HMA), HCA Holdings Inc (HCA): Should Investors Participate in This Hospital Operator Acquisition?

The highest valuation among its peers

At $13.78 per share, Health Management is valued at around 8.2 times its trailing EBITDA. The offering price values Health Management a bit higher than the current valuation of Community Health. Community Health is trading at $45.60 per share, with a total market cap of more than $4.2 billion. It is valued at around 7.6 times its trailing EBITDA.

One of their peers, HCA Holdings Inc (NYSE:HCA), is even cheaper.. It is trading at $39.10 per share, with total market cap of $17.44 billion. The market values HCA Holdings Inc (NYSE:HCA) at only 7.36 times its trailing EBITDA. HCA Holdings Inc (NYSE:HCA) has a diversified portfolio of assets with around 162 hospitals, 32,000 affiliated physicians and 202,000 employees. HCA Holdings Inc (NYSE:HCA) has just recently affirmed its full year 2013 guidance. The company expects to generate around $3.00 to $3.30 per share in adjusted Earnings Per Share (EPS) while producing around $33.50 to $34.50 billion in revenue.

Among the three, HCA Holdings Inc (NYSE:HCA) seems to be the most profitable company with the highest return on assets at 5.12%, Health Management ranked second with 6% return on assets while the return on assets of Community Health was the lowest, at only 1.66%. However, HCA Holdings Inc (NYSE:HCA) also has the weakest balance sheet of the trio, with negative equity of more than $(9.3) billion and the interesting bearing debt of as much as $28.6 billion.

My Foolish take

The Health Management acquisition will really give Community Health a lot of economies scale with more efficient operations. However, Glenview might vote against the deal because they think the Health Management could be acquired at a higher price. According to Glenview, Community Health’s offer has “established an important floor value”, which could be used for seeking higher value for Health Management.

However, with the higher valuation and tough macro environment for hospital operators, I do not think Health Management could be a good play at its current price.

The article Should Investors Participate in This Hospital Operator Acquisition? originally appeared on Fool.com and is written by Anh HOANG.

Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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