We are upgrading our recommendation on Tenet Healthcare (THC) to Outperform based on its strong operating performance in the recent third quarter, which surpassed the Zacks Consensus Estimate, driven by strong results in all lines of the business, especially the robust performance in outpatient volumes and higher admissions.
New debt financing has improved Tenet's maturity profile and is also likely to reduce the company's future interest payments significantly. Moreover, we believe that volume growth can substantially help boost the earnings outlook of Tenet in future, while also facilitating growth through the acquisitions.
Our six-month target price of $5.50 per share equates to about 12.8x our earnings estimate for 2011. With no dividend supplement, this target price implies an expected total return of 18.3% over that period.
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