Tenet Downgraded to Neutral - Analyst Blog
January 12 2012 - 12:02PM
Zacks
We have downgraded our recommendation on Tenet
Healthcare Corp. (THC) to Neutral from Outperform on its
continuous high operating expenses, rising bad debt and expected
rise in collectibles in the upcoming quarters. High leverage amid
the poor global economic scenario is also keeping us on the
sidelines.
Since 2006, Tenet has been steadily generating growth in
operating revenues, mainly due to increases in the outpatient
visits, improvements in managed care pricing and a favorable shift
in managed care payer mix.
Last week, the company announced its adjusted earnings before
interest, taxes, depreciation and amortization (EBITDA) projection
of $1.2–1.3 billion for 2012, which is substantially higher than
2011’s guidance. The uptick is based on an expected upside from
cost reduction in 2012 through Tenet’s ongoing Medicare Performance
Initiative, an increase in its physician count and growth
projection in the company’s Conifer service business.
Moreover, Tenet has been steadily expanding its operating
capacity via acquisitions. During the fourth quarter of 2011, the
company completed the acquisition of CardioVascular Associates P.C.
Additionally, Tenet acquired various diagnostic imaging centers in
Georgia, Alabama, California, Florida, South Carolina and Tennessee
in 2011.
Going ahead, the company also intends to acquire hospitals and
other health care assets to increase the outpatient revenues, as
historically, the outpatient business has generated significantly
higher margins than other business lines.
However, on the downside, Tenet has been experiencing a high
level of operating expenses in the past few years. The impact of
industry-wide and company-specific challenges, including decreased
volumes, decreased demand for inpatient cardiac procedures and high
levels of bad debt, led to the rise of operating expenses.
Moreover, the high level of uncollectible accounts and rising
bad debts impelled the company to increase its provision for
doubtful debts substantially over the years. The company expects to
continue recording higher uncollectible accounts in the upcoming
quarters as well.
The Zacks Consensus Estimate for the fourth-quarter earnings is
pegged at 14 cents per share, up about 39% over the year-ago
quarter. For 2011, Tenet’s earnings are expected to be 42 cents per
share, growing about 2% from 2010.
Tenet competes with HCA Inc. (HCA) and
Community Health Systems Inc. (CYH). The company
carries a Zacks #3 Rank, which implies a short-term Hold’
rating.
COMMNTY HLTH SY (CYH): Free Stock Analysis Report
HCA HOLDINGS (HCA): Free Stock Analysis Report
TENET HEALTH (THC): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Tenet Healthcare (NYSE:THC)
Historical Stock Chart
From Jun 2024 to Jul 2024
Tenet Healthcare (NYSE:THC)
Historical Stock Chart
From Jul 2023 to Jul 2024