On Mar 14, 2013, we downgraded our recommendation on
Tenet Healthcare Corp.
) to Neutral from Outperform based on increasing operating
expenses and bad debt along with a high debt-to-capital
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
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
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
) 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
Coventry Health Care Inc.
) - Zacks Rank #2 (Buy) - and
Air Methods Corp.
) - Zacks Rank #1 (Strong Buy).
AIR METHODS CRP (AIRM): Free Stock Analysis
CIGNA CORP (CI): Free Stock Analysis Report
COVENTRY HLTHCR (CVH): Free Stock Analysis
TENET HEALTH (THC): Free Stock Analysis
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