THC Tenet Healthcare Corporation New

Last week, Tenet Healthcare Corp. (THC) announced a long-term alliance with Blue Cross and Blue Shield of Illinois (BCBSI) in order to provide healthcare services to its members, effective March 1, 2012. However, the financial terms of the deal were not divulged.

As per the agreement, the members of BCBSI will have access to two of Tenet’s hospitals, as well as its outpatient centers and Tenet Physicians Inc. The two hospitals involved in the deal are Des Peres Hospital and Saint Louis University Hospital. The latter is a Level 1 trauma center as well as a teaching hospital, while Des Peres Hospital is a fully accredited Chest Pain Center and an American Society of Metabolic and Bariatric Surgery Center of Excellence.

This is the first time that Tenet has inked a deal with BCBSI, which is the largest insurance company in Illinois and an independent licensee of the Blue Cross and Blue Shield Association (BCBSA).

While WellPoint Inc. (WLP) has most of the exclusive rights to market products under the BCBSA, the most recognized brand in the health insurance industry, the association with BCBSI will help Tenet to expand its business exposure. The company will also benefit from BCBSI’s strong membership count in Illinois, thereby increasing its competitive strength in the industry.

Earnings Review

In November 2011, Tenet reported its third-quarter 2011 operating earnings of $16 million or 4 cents per share, beating the Zacks Consensus Estimate of 1 cent and operating loss of $14 million or 1 cent per share in the prior-year quarter.

Additionally, management reiterated its adjusted EBITDA projection for 2011 to be between $1.175 billion and $1.275 billion.

Moreover, on January 9, 2012, Tenet announced its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) guidance of $1.2–1.3 billion for 2012. The adjusted EBITDA includes the deductions from accounting changes to account for some deferred income recognized out of certain Medicare Healthcare Information Technology (HIT) incentive payments, which is expected to be about $31 million in 2012.

The Zacks Consensus Estimate for the fourth-quarter earnings is pegged at 14 cents per share, up about 36% over the year-ago quarter. For 2011 and 2012, Tenet’s earnings are expected to be about 41 cents per share and 49 cents per share, respectively.

Tenet carries a Zacks #3 Rank, which implies a short-term ‘Hold’ rating. Considering the fundamentals, we maintain our long-term ‘Neutral’ recommendation on the shares.

 
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