Tenet Upped to Neutral - Analyst Blog


On Jan 22, 2014 we upgraded our recommendation on Tenet Healthcare Corp. ( THC ) to Neutral on expectation of growth in outpatient revenues, and financial and strategic plans to offset negatives like high bad debts and overhang of lawsuits. This healthcare services company currently carries a Zacks Rank #3 (Hold).

Why the Upgrade?

Tenet Healthcare has been delivering consistent growth in revenues that is largely attributable to the outpatient business. Going forward, the extension of the California Provider Fee program till 2016 is yet another positive that is expected to contribute positively to revenues. Other endeavors that raise optimism about the stock include the alliance with the Louisiana Children's Medical Center and analytics service provider, VisiQuate Inc. These deals are expected to be accretive to the revenue cycle management solutions of Tenet Healthcare, going forward.

Tenet Healthcare continues to boost business growth and optimize its capital structure through financial and strategic plans. These plans include share repurchase authorizations, stock splits as well as raising long-term debts to redeem old debt and improve financial leverage.

Tenet Healthcare is also slated to benefit from the health care reform which would increase the pool of insured patients, enhancing Tenet Healthcare's hospitals' bottom line. Further, given the concentration of the company's operations in California, Florida and Texas states, which historically have higher percentages of uninsured and underinsured patients, Tenet Healthcare enjoys a strong competitive advantage in benefiting from extended insurance coverage.

However, amid the positives, rising bad debts is one of the main concerns of the company. As Tenet Healthcare serves a large number of uninsured and underinsured patients, it expects a high level of uncollectible accounts in the upcoming quarters as well. Also, soft inpatient revenues are expected to persist and pose a greater challenge for the upcoming quarters as well. Thus, we do not expect a near-term outperformance by the stock. The Zacks Consensus Estimate for the fourth quarter of 2013 is pegged at 34 cents per share, representing a year-over-year decline of 33.7%.

Tenet Healthcare was also grappling with litigation issues that required the company to pay large amounts as settlements. Legal hassles not only weigh on the financials but also affect the goodwill of the company.

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 full-year 2013 is $1.78, translating into a year-over-year improvement of almost 5%.

Other Stocks to Consider

Some better-ranked stocks in the healthcare space include Addus HomeCare Corporation ( ADUS ), VCA Antech Inc. ( WOOF ) and Mednax Inc. ( MD ). While Addus carries a Zacks Rank #1 (Strong Buy), VCA Antech and Mednax carry a Zacks Rank #2 (Buy).

ADDUS HOMECARE (ADUS): Free Stock Analysis Report

MEDNAX INC (MD): 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 , MD , THC , WOOF



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