Tenet Downgraded to Sell - Analyst Blog

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Zacks Investment Research downgraded Tenet Healthcare Corp. ( THC ) to a Zacks Rank #4 (Sell) on Jan 21, 2014.

Why the Downgrade?

Tenet Healthcare delivered negative earnings surprise in three out of the last four quarters with an average surprise of -3.33%. Over the last 30 days, estimates moved downwards leading to a 1.4% decline in the Zacks Consensus Estimate for full-year 2014 to $2.72 per share. Notably, the company has been witnessing downward estimate revisions post reporting mixed third-quarter 2013 results.

Tenet Healthcare's third-quarter earnings per share of 45 cents, which although higher than the year-ago earnings, missed the Zacks Consensus Estimate by 2.2%.

Tenet Healthcare has been experiencing high levels of operating expenses for quite some time. During the last reported quarter, the company witnessed higher operating costs due to increased salaries, wages and benefits, and other operating expenses. Bad debt expenses also increased due to higher uninsured revenues. As Tenet Healthcare serves a large number of uninsured and underinsured patients with a high burden of co-payments and deductibles, and expects a high level of uncollectible accounts in the upcoming quarters, bad debt expenses are expected to rise.

Moreover, the company is facing stronger volume headwinds than when it formed the business plans. Thus, inpatient volume is expected to remain soft in the fourth quarter of 2013. Tenet Healthcare also has a high debt burden. Declining cash flows further adds to the woes. Tenet Healthcare expects adjusted EBITDA of $400-$450 million in fourth-quarter 2013 anticipating weak inpatient volume growth and a less attractive payer mix to continue through the quarter.

Tenet Healthcare is scheduled to release its fourth quarter and full-year 2013 results in the last week of Feb 2014. The Zacks Consensus Estimate for the quarter is pegged at 34 cents per share, representing a year-over-year decline of 33.7%. Over the last 7 days, the Zacks Consensus Estimate for full-year 2013 declined 2.7% to $1.78 per share.

Other Stocks to Consider


However, some better-ranked stocks in the healthcare services space include VCA Antech Inc. ( WOOF ), Addus HomeCare Corporation ( ADUS ) and LCA-Vision Inc. ( LCAV ). All the three stocks carry a Zacks Rank #2 (Buy).



ADDUS HOMECARE (ADUS): Free Stock Analysis Report

LCA-VISION INC (LCAV): Free Stock Analysis Report

TENET HEALTH (THC): Free Stock Analysis Report

VCA ANTECH INC (WOOF): Free Stock Analysis Report

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Zacks Investment Research



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Business , Stocks

Referenced Stocks: ADUS , LCAV , THC , WOOF

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