Mizuho Securities Downgrades Tenet Healthcare (THC) to Underperform; High Leverage
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Mizuho Securities downgraded Tenet Healthcare (NYSE: THC) from Neutral to Underperform with a price target of $13.00, citing high leverage.
Analyst Sheryl Skolnick commented, "THC presents a problem because of its high leverage. There, even at $13, the stock trades at 7.8x our 2016 estimate and 7.3x our 2017 estimate of EBITDA less NCI. At its current $17 price, THC trades at 7.6x multiple, i.e., a premium to HCA and that is not right under any circumstances (HCA has FCF, THC doesn’t) in our view. To be within 10% of the current stock price, i.e., to keep our Neutral rating, THC shares would have to trade at $15, i.e., at a 7.8x multiple, a nearly half-turn premium to our HCA target price. Frankly, with our work in Exhibit 11 showing that a 7.3x multiple on a 2017 year less the ACA impact mitigated by 50% gets to a $13 price target, we’re sticking to our guns on valuation work and lowering our rating on THC to Underperform. There’s just too much risk to pay a premium in our view."
Shares of Tenet Healthcare closed at $17.01 yesterday.
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