On Oct 9, 2013, we downgraded our recommendation on
Tenet Healthcare Corp.
) to Underperform from Neutral following the mixed second quarter
Why the Downgrade?
Estimates for Tenet Healthcare, have been declining ever since it
reported preliminary second quarter results on Aug 6. Tenet
Healthcare's second-quarter earnings came in at 66 cents per
share that missed the Zacks Consensus Estimate of 69 cents per
share by 4.3%. However, results surpassed the year-ago quarter's
earnings of 41 cents per share by 61%.
Following the release of second quarter results, the Zacks
Consensus Estimate for 2013 has gone down 2.2% to $2.25 per
share. With this reduction in Zacks Consensus Estimates for 2013,
this healthcare services company now has a Zacks Rank #3 (Hold).
Tenet Healthcare has a high level of uncollectible accounts and
rising bad debts as it caters to a large number of uninsured and
underinsured patients who have high burden of co-payments and
deductibles. The first half of 2013 also suffered the same fate
that more than offset the improvement in collection rate within
Moreover, the inpatient volumes of Tenet Healthcare has also been
declining since the beginning of 2013 and a near term improvement
to this situation is unlikely owing to a decline in adjusted
admissions. This is also reflected in the company's projection
about inpatient volume for 2013 (a decline of 2%-4%) and the
subsequent lowering of 2013 adjusted EBITDA guidance.
The elevated levels of operating expenses added to the concerns.
Particularly, physician employment expense coupled with salaries,
wages and benefits, supplies influenced the heavy expenses. Until
physician employment are streamlined and patients fill out in
their office practices, there would be no improvement in the
scenario and Tenet Healthcare also expects to witness rising
expenses through 2013. Furthermore, high financial leverage and
overhang of lawsuits remains a matter of distress for the
Other Stocks to Consider
Among other healthcare companies,
Avita Medical Limited
Acadia Healthcare Company Inc.
) with a favorable Zacks Rank #2 (Buy) are worth considering.
ACADIA HEALTHCR (ACHC): Free Stock Analysis
AVITA MED LTD (AVMXY): Get Free Report
MEDNAX INC (MD): Free Stock Analysis Report
TENET HEALTH (THC): Free Stock Analysis
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