Must-know: A guide to Blue Ridge Capital’s 4Q13 positions (Part 8 of 8)
Blue Ridge Capital and Tenet Healthcare
Blue Ridge Capital initiated new positions in Marathon Petroleum Corp (MPC), Actavis Plc (ACT), Apple Inc. (AAPL), SanDisk Corp. (SNDK), and Cheniere Energy Inc. (LNG). Notable positions that were exited include Ralph Lauren Corp. (RL) and Tenet Healthcare Corp. (THC).
Blue Ridge eliminated a position in hospital operator Tenet Healthcare Corp. (THC) that accounted for 1.52% of the fund’s 3Q portfolio. Tenet Healthcare’s subsidiaries and affiliates operate regionally focused, integrated healthcare delivery networks with a significant presence in several large urban and suburban markets.
As of December 31, 2013, Tenet primarily operated 77 hospitals, 183 outpatient centers, six health plans, six accountable care networks, and Conifer Health Solutions, LLC, which provides business process solutions to more than 700 hospital and other clients in the U.S. On October 1, 2013, Tenet completed its previously announced acquisition of Vanguard Health Systems, Inc., an investor-owned hospital company whose operations complemented Tenet’s existing business.
Tenet Healthcare’s stock plunged after the company posted a fourth-quarter net loss and provided a lower guidance. Tenet reported a net loss of $24 million, or $0.24 a share, compared with net income of $49 million, or $0.45, a year ago. The loss was due to an increase in debt related to the financing of the Vanguard acquisition and financing of share repurchases. Net operating revenue rose about 67% in the quarter, to $3.89 billion, primarily due to an increase in outpatient volumes, improved managed care pricing, and increased revenues from services provided by the company’s Conifer subsidiary to third parties.
Adjusted admissions declined 0.5% in the fourth quarter on a same-hospital basis, including a 2.3% decline in same-hospital inpatient admissions. Tenet believes the current economic conditions continue to have an adverse impact on the level of elective procedures performed at its hospitals, which contributed to the decrease in the total admissions.
CEO Trevor Fetter said, “While we continue to face industry-wide inpatient volume headwinds, we are well-positioned to capture benefits from the evolving healthcare environment. We will continue to leverage our scale and diversity to drive growth while investing in clinical systems to enhance cost efficiencies.”
Tenet’s 2014 outlook was modeled to include the unfavorable impact from the expected government reimbursement reductions under the Affordable Care Act related to Medicare disproportionate share revenue cuts and continuing Medicare market basket rate reductions that the company has been absorbing over the past several years. These reductions are anticipated to have an incremental negative impact on 2014 EBITDA of about $50 million. Tenet will also absorb a full year of the Medicare 2% sequestration cuts compared to nine months in 2013 since the cuts didn’t begin until April 1 last year. These cuts will create about a $25 million headwind against dividends in 2014 compared to last year on a total company pro forma basis.
Fetter expects that the healthcare coverage of newly insured patients under the Affordable Care Act will generate net benefits by reducing the burden of bad debt expense and gradually driving higher volumes.
To learn more about the latest 13Fs for hedge fund ownership, see the Market Realist series The Baupost Group’s 4Q13 positions: An investor’s must-know guide.
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