Tenet Healthcare Corporation (THC)-
$18.60 (as of 7/07/17)
Kyle Jacobsen
Healthcare- (Health Care Facilities)
Market Capitalization: 1.81B
Annualized Dividend Yield%: N/A (No Dividend)
Recommendation: Short and expected to cover
within 2 to 6 months
Date: 7/07/2017 P/E Ratio (ttm): 53.03
12 M Target Cover Price: $15.10 Estimated Horizon ROI: (app. 15 – 20%)
Next Earnings Announcement: 8/07/17 Beta to SPX: 1.31
Total Debt to EBITDA: 6.59 Short Interest as % of Total Float: 33.72%
CATALYSTS
President Trump’s proposed AHCA (American Health Care Act) creates uncertainty for hospital
network revenue streams by removing the guaranteed inflows from a mandate in the current
legislation (ACA) forcing individuals to have health insurance or pay a fee when filing federal
income taxes
Tenet faces large long-term debt obligations and current is levered by about 6.6x
Tenet has started to begin the selling process of certain Texas facilities to meet short-term debt
obligations
BUSINESS OVERVIEW
Tenet Healthcare Corporation (THC) is a healthcare services company. The Company operates regionally
focused, integrated healthcare delivery networks in 12 U.S. states. Tenet has a large regional chain and is
headquartered in Dallas, Texas. The Company's segments include Hospital Operations and Other,
Ambulatory Care and Conifer. The largest segment of Tenet’s business model is acute care, which makes up
about 88% of total revenue.
COMPANY WEAKNESSES
Pressured profit margins due to potential outlying legislative changes to HMOs (Health Maintenance
Organizations)
EBITDA margin will be diluted with the sale of Texas facilities
Slowing sales growth and decreased revenue per patient will continue to weigh on earnings
Poor earnings estimates by analysts, revenue declines, and sector tailwinds favor an earnings miss
Small size of company relative to peers and no clear fundamental edge amongst large domestic
competitors
High short interest and relatively large default risk rate
YTD:
COMPETITORS
Tenet Community LifePoint Quorum Universal
Healthcare Health Health Inc. Health Health
(THC) Systems (LPNT) Corporation Systems
(CYH) (QHC) (UHS)
Market 1.81B 820.03M 2.4B 104M 10.72B
Capitalization
1 Yr Default 2% (B) 2.13% (B) 0.25% 0.12% (B-) 0.59%
Probability (BB-) (BB+)
(S&P Credit
Rating)
SI / Float % 33.72% 14.34% 10.59% 8.13% 3.35%
Sales Growth -4.58% -10.26% 3.13% -3.99% 7.47%
(Year-over-
Year)
Total Debt to 6.59 7.27 3.94 12.17 2.41
EBITDA
1-Year Default Risk Chart
RISKS
The AHCA could continue to fail progressing through the legal system, allowing for the continuation
of Obamacare (ACA) policies
Tenet could develop further agreements with HMOs to guarantee a better short-term revenue stream
per patient
INVESTMENT SUMMARY
THC (Tenet Healthcare) is in an overall predicament between an impending legislative change and the
impacts of neglecting large debt obligations. The proposed Trump bill will drastically decrease the amount of
insured under health insurance providers (HMOs & HCSOs). Regardless of the timing, the proposed bill will
likely maintain the removal of the insured requirement. From a debt standpoint, the leverage amount and
lack of organic revenue or earnings growth will serve as a short-term dampener on share price. The company
will likely maintain solvent in the face of a legislation change due to recent strategy changes. However,
short-term price depreciation to recent technical support levels in the low $15s is highly likely.
