On Jan 22, 2014 we upgraded our recommendation on
Tenet Healthcare Corp.
) 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).
ADDUS HOMECARE (ADUS): Free Stock Analysis
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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
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
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
VCA Antech Inc.
). While Addus carries a Zacks Rank #1 (Strong Buy), VCA Antech
and Mednax carry a Zacks Rank #2 (Buy).