Tenet Healthcare Corp. is strengthening its balance sheet, and it will see future growth from the health care overhaul and its Conifer Health Solutions business, according to Raymond James analysts who raised their rating on the hospital operator's shares.
THE SPARK: Tenet, based in Dallas, said earlier this week that it will issue $850 million in senior secured notes at an annual rate of 4.5 percent due in 2021. It will use proceeds from the offering to buy its 10 percent senior secured notes due in 2018.
THE BIG PICTURE: Tenet runs 49 hospitals in several states, with most locations concentrated in Texas and the Southeast. The company also runs more than 100 outpatient centers and Conifer, which helps hospitals manage revenue and run their business operations.
Analysts expect Tenet and other hospital operators to benefit from the health care overhaul, the massive law that aims to cover millions of uninsured people. Starting next year, the overhaul will expand the state and federally funded Medicaid program for the poor and disabled people in some states and it will begin offering income-based subsidies that help people buy coverage.
That is expected to generate more revenue for hospitals that will likely see fewer uninsured patients.
THE ANALYSIS: That new debt will save Tenet about $30 million in interest expense, and the company has other sizeable slices of debt that could be refinanced over the next couple of years to create more savings, Raymond James analysts John Ransom and Nicholas Jansen said in a note to investors.
They also note that while the company's share price has grown the past few months, there's room for more growth as money flows into sectors that will benefit from the overhaul.
SHARE ACTION: Shares climbed 2.3 percent, or 88 cents, to $38.64 Thursday, while broader trading indexes rose slightly. The company's stock price has climbed 64 percent since closing October at $23.60.