Tenet Healthcare's Acquisitions & Partnerships Look Good - Analyst Blog
We issued an updated research report on Tenet Healthcare Corp. THC on Jun 29, 2015.
Tenet Healthcare has been generating consistent growth in operating revenues. This has been fueled by the same-hospital adjusted patient admissions, same-hospital net patient revenue per adjusted patient admission, and increase in revenues at Conifer from non-Tenet hospitals. Moreover, the partnership with Baylor Scott & White Health in Mar 2015 complements Tenet’s capabilities and hence, helps it cater to more patients in an efficient manner. This, in turn, makes way for better revenue generation.
Tenet Healthcare’s partnerships and acquisitions are also paying off well. In Jun 2015, the company acquired Aspen Healthcare Ltd. from Welsh Carson. Moreover, the establishment of Resolute Health Hospital in Jun 2014 as well as the joint ventures (JVs) with Baptist Health System in Birmingham, AL and United Surgical Partners International – both in Jun 2015 – should help the company provide high quality healthcare at lower cost. These JVs should, therefore, be accretive to earnings.
Moreover, the company has a sound capital structure and relies on a robust strategy of issuing debts at a lower coupon rate to redeem debts with higher coupon rate. This helps Tenet Healthcare to capitalize on the low interest rate environment to reduce borrowing costs.
Some provisions of the health care reform legislation, signed in Mar 2010, are expected to impact hospital companies like Tenet Healthcare positively. Given the concentration of the company’s operations in California, Florida and Texas – which historically have higher percentages of uninsured and underinsured patients – Tenet Healthcare enjoys a strong competitive advantage by benefiting from the extended insurance coverage.
However, the company’s high level of uncollectible accounts and rising bad debts raise caution. Moreover, Tenet Healthcare has been experiencing high levels of operating expenses over the past few years. Until physician employment streamlines and patients fill out the office practices, there would be negligible improvement in the scenario. Increase in information technology service contract expenses related to the HIT implementation program, malpractice expenses, physician relocation costs, hospital provider fees, annual salary hikes and employee benefits further weigh on the margins from time to time.
Moreover, the company’s inpatient revenues are facing threat from the CMS’ implementation of a 1% decrease in payments for hospitals which might weigh on overall revenues.
Tenet Healthcare currently holds a Zacks Rank #2 (Buy). Investors may consider other stocks from the hospital industry like HCA Holdings, Inc. HCA, Acadia Healthcare Company, Inc. ACHC and VCA Inc. WOOF. All three stocks have the same Zacks Rank as Tenet Healthcare.
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