Zacks Investment Research downgraded Tenet Healthcare Corp. (THC) to a Zacks Rank #5 (Strong Sell) on Dec 24, 2013.
Why the Downgrade?
Tenet Healthcare witnessed downward estimate revisions after reporting mixed third-quarter 2013 results. Additionally, Tenet Healthcare delivered negative earnings surprise in three out of the last four quarters with a negative average surprise of 3.3%. Over the last 30 days, the stock experienced a 0.5% decline in the 2013 Zacks Consensus Estimate to $1.83 per share. Over the same period estimates for 2014 moved down leading to an approximately 2% decline in the Zacks Consensus Estimate to $2.82 per share.
On Nov 4, Tenet Healthcare reported third-quarter earnings per share of 45 cents. Though the figure was higher than the year-ago earnings, it missed the Zacks Consensus Estimate of 46 cents. The top line also improved from the prior-year quarter but was in line with the Zacks Consensus Estimate.
The quarter witnessed a 2.6% decline in total admissions due to lower inpatient admissions. The mixed results of the quarter also reflect the increase in bad debt expense. The first nine months were also a drag in terms of financial position of the company. Cash flow, and cash and cash and cash equivalents both declined during the period while capital expenditures escalated.
The lower guidance provided by Tenet Healthcare further adds to our downgrade. The lower end of the adjusted EBITDA guidance for 2013 was cut to $1.298 billion from $1.3 billion. Management assumed the soft inpatient volume growth and less attractive payer mix to continue through the fourth quarter.
Other Stocks to Consider
Some better-ranked stocks in the healthcare services space include Acadia Healthcare Company, Inc. (ACHC), VCA Antech Inc. (WOOF) and Addus HomeCare Corporation (ADUS). While Acadia and Addus carry a Zacks Rank #1 (Strong Buy), VCA Antech carries a Zacks Rank #2 (Buy).