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6 Reasons to Shun Tenet Healthcare (THC) Stock For Now
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The hospital sector has already fallen out of favor due to fears that the changes likely to be brought about by the Obamacare replacement plan might increase the uninsured rate. This is an eye sore for the sector.
Stocks of most of the hospital companies like Community Health Systems Inc. (CYH - Free Report) , LifePoint Health Inc. and Acadia Healthcare Company Inc. (ACHC - Free Report) have been volatile, since the presidentil election. Tenet Healthcare Corporation (THC - Free Report) is no exception.
Other than industry-related uncertainty, Tenet Healthcare stock is facing pressure from internal headwinds. The stock carries a Zacks Rank #5 (Strong Sell) and below we point out some of the reasons why investors should stay away from the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price Impact: The stock price movement has not been much favorable for the company. Over the past one year, Tenet Healthcare has lost 23% and substantially underperformed the Zacks categorized Medical-Hospital industry, which gained 11%. The stock must have suffered from earnings miss in the past three consecutive quarters. We do not expect any respite for the stock in the near term given high debt, high leverage and escalating operating expenses which will weigh on its operating margin.
Earnings Miss and Downward Estimate Revision: The company missed on earnings in three out of the last four quarters. The average miss for the last four quarters is 18%. The stock also saw a 43% downward revision in earnings estimates for 2017 over the past 60 days. For the first quarter of 2017, the Zacks Consensus Estimate stands at a loss of 51 cents per share which translates into a year-over-year deterioration of 214%.
Increasing Expenses: Tenet Healthcare has been experiencing high levels of operating expenses in the past few years. Its operating expenses have increased at a five-year CAGR (2010–2015) of 19.7% mainly on account of higher salaries, wages and benefits, supplies and other operating expenses. In 2016, operating expenses increased 5.2%. Rise 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 weighed on margins from time to time.
For 2017, the company forecast interest expense of roughly $1.03 billion, depreciation and amortization expense of $860 million to $880 million, and non-controlling interest expense of $390 million to $410 million, which is higher than interest expense of $0.98 billion, depreciation and amortization charge of $850 million and non-controlling interest expense of 349 million incurred in 2016. An increase in these charges and expenses is expected to drain margins.
High Leverage: Tenet Healthcare is a highly leveraged company with long-term debt of approximately $15.1 billion as of Dec 31, 2016, up from $14.4 billion at the end of 2015 and $11.7 billion at the end of 2014. Shareholders' equity was merely $417 million as of Dec 31, 2016. This implies a long-term debt-to-equity ratio of 34.5x.
Loss on Unprofitable Health Insurance Business: The company’s health plans business acquired with Vanguard is not a core element of its capabilities in value-based care. It is subscale and not profitable in aggregate, and it requires capital. The company is therefore considering an exit from the business. It expects to incur nearly $30 million of loss in 2017 in relation to its health plan business before it sells or winds down these operations.
Overvalued: The company’s growth rate over the past five years has been -10.8 compared with +4.90% for the industry. Its PE (TTM) of 18.69 is higher than the industry PE ratio of 13.67.
Also, its forward PE ratio of 16.47 is higher than the industry PE ratio of 12.9.
The company’s net profit margin (TTM) is -0.94% compared with the industry’s net profit margin of 4.98%.
Moreover, its PEG ratio of 2.74 is higher than the industry’s PEG ratio of 1.15.
Tenet Healthcare stock at present looks overvalued and not worth investing in.
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6 Reasons to Shun Tenet Healthcare (THC) Stock For Now
The hospital sector has already fallen out of favor due to fears that the changes likely to be brought about by the Obamacare replacement plan might increase the uninsured rate. This is an eye sore for the sector.
Stocks of most of the hospital companies like Community Health Systems Inc. (CYH - Free Report) , LifePoint Health Inc. and Acadia Healthcare Company Inc. (ACHC - Free Report) have been volatile, since the presidentil election. Tenet Healthcare Corporation (THC - Free Report) is no exception.
Other than industry-related uncertainty, Tenet Healthcare stock is facing pressure from internal headwinds. The stock carries a Zacks Rank #5 (Strong Sell) and below we point out some of the reasons why investors should stay away from the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price Impact: The stock price movement has not been much favorable for the company. Over the past one year, Tenet Healthcare has lost 23% and substantially underperformed the Zacks categorized Medical-Hospital industry, which gained 11%. The stock must have suffered from earnings miss in the past three consecutive quarters. We do not expect any respite for the stock in the near term given high debt, high leverage and escalating operating expenses which will weigh on its operating margin.
Earnings Miss and Downward Estimate Revision: The company missed on earnings in three out of the last four quarters. The average miss for the last four quarters is 18%. The stock also saw a 43% downward revision in earnings estimates for 2017 over the past 60 days. For the first quarter of 2017, the Zacks Consensus Estimate stands at a loss of 51 cents per share which translates into a year-over-year deterioration of 214%.
Increasing Expenses: Tenet Healthcare has been experiencing high levels of operating expenses in the past few years. Its operating expenses have increased at a five-year CAGR (2010–2015) of 19.7% mainly on account of higher salaries, wages and benefits, supplies and other operating expenses. In 2016, operating expenses increased 5.2%. Rise 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 weighed on margins from time to time.
For 2017, the company forecast interest expense of roughly $1.03 billion, depreciation and amortization expense of $860 million to $880 million, and non-controlling interest expense of $390 million to $410 million, which is higher than interest expense of $0.98 billion, depreciation and amortization charge of $850 million and non-controlling interest expense of 349 million incurred in 2016. An increase in these charges and expenses is expected to drain margins.
High Leverage: Tenet Healthcare is a highly leveraged company with long-term debt of approximately $15.1 billion as of Dec 31, 2016, up from $14.4 billion at the end of 2015 and $11.7 billion at the end of 2014. Shareholders' equity was merely $417 million as of Dec 31, 2016. This implies a long-term debt-to-equity ratio of 34.5x.
Loss on Unprofitable Health Insurance Business: The company’s health plans business acquired with Vanguard is not a core element of its capabilities in value-based care. It is subscale and not profitable in aggregate, and it requires capital. The company is therefore considering an exit from the business. It expects to incur nearly $30 million of loss in 2017 in relation to its health plan business before it sells or winds down these operations.
Overvalued: The company’s growth rate over the past five years has been -10.8 compared with +4.90% for the industry. Its PE (TTM) of 18.69 is higher than the industry PE ratio of 13.67.
Also, its forward PE ratio of 16.47 is higher than the industry PE ratio of 12.9.
The company’s net profit margin (TTM) is -0.94% compared with the industry’s net profit margin of 4.98%.
Moreover, its PEG ratio of 2.74 is higher than the industry’s PEG ratio of 1.15.
Tenet Healthcare stock at present looks overvalued and not worth investing in.
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