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Tenet Healthcare Sells Hospital Unit to Streamline Business

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Tenet Healthcare Corporation THC announced the sale of its MacNeal Hospital and its associated operations to Loyola Medicine, an affiliate of Trinity Health.

The transaction is expected to be completed in the first quarter of 2018. It marks one of the many steps taken by the company to reorganize its business, which is suffering from a decline in admissions, inpatient and outpatient surgeries, emergency department visits and total outpatient visits, and high bad debt.

Last month, the company reshuffled its top brass in an effort to steer the company toward growth. The changes included the resignation of its CEO Trevor Fetter, effective Mar 15, 2018 or earlier when the company finds a suitable replacement. The company is also reviewing its board composition to sharpen management’s expertise in areas required for its long-term growth.

Tenet Healthcare posted loss in the last two quarters and missed earnings estimates in three quarters in a row prior to that. The company has also reduced its earnings guidance for 2017 after lackluster performance in first-half 2017.

In a year's time, the stock has lost 37.3% compared with the industry’s decline of 13.3%.

The company is making continuous improvement in its business portfolio by exiting non-core and least profitable business lines. Recently, the company completed the sale of its Huston-based hospitals and related operations to HCA Healthcare Inc. HCA.

The proceeds from the sale of its units are being used to repay debt to lower its interest burden and strengthen balance sheet. The funds are also being invested in growth areas, such as its Ambulatory platform in which the company is targeting $100 million to $150 million in acquisition opportunities every year.

Other actions to restore profitability include expense reduction via managing pricing and cost, integrating recent acquisitions, building facilities by expanding access points for patients and investing in key service lines.

Though these actions will help the company’s hospitals to expand their market share for both inpatient and outpatient services over the long term, short-term business volumes remain challenged.

The hospital industry is suffering from low patient admissions as they are increasingly choosing to stay away from hospitals due to high out-of-pocket (which shift the initial costs to patients) costs. Also, a pullback of insurers from public exchanges has increased the uninsured rate, which in turn is hurting the company. Given continued uncertainty over the future of Obamacare, the present scenario is likely to continue in the quarters ahead which will drain the company’s business volumes.

Some players like Community Health Systems Inc. CYH and United Health Services, Inc. UHS are suffering from industry weakness.

Universal Health missed second-quarter earnings estimates and cut its 2017 earnings guidance. Community Health on the other hand incurred loss in the second quarter and reduced its 2017 earnings guidance.

Tenet Healthcare carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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