Zacks Investment Research downgraded shares of Tenet Healthcare Corp. (THC) from OUTPERFORM to NEUTRAL on October 19, 2012, with a target price of $25.00.
We are downgrading our recommendation on Tenet to Neutral based on its rising expenses and bad debts coupled with a highly leveraged balance sheet. The company's second-quarter earnings surpassed the Zacks Consensus Estimate and the year-ago results based on revenue growth due to higher adjusted admissions, outpatient visits and surgeries. These were partly offset by higher bad debt. Moreover, operating cash flow increased, although cash balance declined due to high capital expenditure. Nevertheless, the ongoing strategic plans are expected to generate growth, enhance capital structure and boost shareholder value. While debt taken to finance the repurchase of convertible preference shares will increase interest expenses, the repurchase has prevented equity dilution. Overall, we believe that strong organic and inorganic growth can help boost the future earnings outlook.
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