Tenet Healthcare Falls to Neutral - Analyst Blog
March 15 2013 - 2:00PM
Zacks
On Mar 14, 2013, we downgraded our recommendation on
Tenet Healthcare Corp. (THC) to Neutral from
Outperform based on increasing operating expenses and bad debt
along with a high debt-to-capital ratio.
Why the Downgrade?
Tenet Healthcare reported fourth-quarter 2012 earnings from
continuing operations of 52 cents per share, falling short of the
Zacks Consensus Estimate of 69 cents.
Tenet Healthcare has been experiencing high levels of operating
expenses in the past few years. Moreover, this Zacks Rank #3 (Hold)
stock has a high level of uncollectible accounts and rising bad
debts, due to which it increased the provision for doubtful debts
from $487 million in 2006 to $785 million in 2012.
Further, Tenet Healthcare is a highly leveraged company with
approximately $5.16 billion long-term debt at the end of 2012
compared with shareholders’ equity of only $1.14 billion. This
implies a long-term debt-to-equity ratio of 4.53, posing ample
financial risk.
Tenet Healthcare witnessed downward revision of 10 of 15
estimates over the last 30 days. The Zacks Consensus Estimates for
2013 declined 3.7% to $2.82.
Nevertheless, in the long-term, increasing operating revenues
and growth through acquisitions are expected to be beneficial for
Tenet Healthcare. Alliances and contract renewals also pay an
important role in enhancing profitability.
In this regard, the renewal of the service contract with
Cigna Corp. (CI) in 2012 is important as it is one
of the largest contracts owned by the company. Moreover, the recent
capital management plans are expected to enhance returns, capital
structure and shareholder value of Tenet Healthcare.
Other Stocks to Consider
Other companies worth considering in the healthcare business are
Coventry Health Care Inc. (CVH) – Zacks Rank #2
(Buy) – and Air Methods Corp. (AIRM) – Zacks Rank
#1 (Strong Buy).
AIR METHODS CRP (AIRM): Free Stock Analysis Report
CIGNA CORP (CI): Free Stock Analysis Report
COVENTRY HLTHCR (CVH): Free Stock Analysis Report
TENET HEALTH (THC): Free Stock Analysis Report
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