Tenet Healthcare Corp. (THC, $41.30) is a healthcare services company which owns hospitals, outpatient centers, health plans, and accountable care organizations; totaling 250 facilities in 16 states.
2014 revenues are expected to rise 43%, assisted by the October 2013 acquisition of Vanguard Health Systems. Earnings per share (EPS) are expected to fall 24% in 2014, then rise 76% and 30% in 2015 & ’16 (December year-end). The price-earnings ratio (PE) is 28.9. Tenet’s long-term debt-to-capitalization ratio is 89%, which is high vs. its peers.
S&P gives THC a Risk Assessment of “Medium”. “Our risk assessment reflects our view of improving fundamentals for the for-profit hospital group ahead of the implementation of health care reform. We think THC has closed the gap between its margins and those of its peers in recent years, supported by favorable pricing. However, we are concerned about the group’s dependence on third-party reimbursements, including Medicare and Medicaid, which can be unpredictable and are likely to face pressure over the long term.”
I am concerned that Obamacare is the tail that’s wagging the dog at Tenet, as the company stakes its business model and profitability projections on an unpopular and thus-far-unworkable government program.
To re-cap, Tenet Healthcare cannot earn a buy rating atGoodfellow LLC due to the falling 2014 EPS, high PE, and the high long-term debt ratio. I am additionally uncomfortable with the company’s dependence on the successful implementation of the Affordable Care Act.
That being said, let’s look at the chart. The stock has been trading sideways for a year. I would use a stop-loss order below support, at $36, for protection. I would aim to sell at $47, at which point I would reinvest my capital into a company with strong earnings growth and a bullish chart.
A trader could certainly gamble by jumping in below $42 and selling at $47. I would personally confine my trading activity to stocks with fewer red flags, thereby minimizing my overall risk.
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