Envision Healthcare Corporation EVHC has completed the divestiture of its medical transportation business, American Medical Response, to an entity affiliated with KKR & Co. This divestiture was announced in August 2017. Sales proceeds of $2.1 billion from the transaction will be utilized, to pay off the company’s debt, which will improve its balance sheet position.

The company’s total debt has been increasing over the past many years. As of Dec 31, 2017, the company had total debt of approximately $6.4 billion, up 10.3% year over year. The rise in leverage has consequently led to a spike in interest expenses, increasing from $17 million in 2012 to $142.4 million in 2016. Interest expenses in 2017 also rose 62% year over year. Envision's debt is about 4.6 times EBITDA, which is above the 3 to 4 times EBITDA that it is comfortable with.

With this sale, Envision Healthcare will be focusing on its two main businesses — Physician Services with 84% revenue mix and Ambulatory Surgery contributing the rest.  The company is optimistic about the physician services market ($90-$100 billion addressable and highly fragmented market), which is witnessing consolidation. Various factors such as mandate for clinical integration, value-based pricing innovation, lack of scaled physician practices, shortage of physician supply, hospital cost pressures, MACRA readiness and finally, increasing regulations will lead to increased demand for physician services.

In order to expedite growth in the Physician Services business, the company is planning to grow inorganically. It had an active acquisition strategy in 2017, having invested more than $758 million in buyouts for the full year. The company will continue to invest its free cash flow (expected $400 million) in accretive acquisitions and expects the M&A activity to add an extra 4-5% to its growth profile.

The company has also undertaken operational improvements initiatives. Via revenue cycle management, clinical labor management and operational efficiencies, the company has plans to realize $50 million of incremental adjusted EBIDTA in 2018.

In six month’s time, the stock has lost 17% underperforming the industry’s growth of 4.23%. The company’s business structuring and operational improvement initiatives should support the stock in the coming quarters.

Envision Healthcare carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the healthcare space are Amedisys Inc. AMED, Almost Family Inc. AFAM and AAC Holdings, Inc. AAC, each carrying the same Zacks Rank as Envision Healthcare.