Mizuho Securities Downgrades Tenet Healthcare (THC) to Underperform; High Leverage

November 22, 2016 9:26 AM EST
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Price: $18.02 -2.28%

Rating Summary:
    12 Buy, 15 Hold, 1 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 22 | Down: 32 | New: 34
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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."

For an analyst ratings summary and ratings history on Tenet Healthcare click here. For more ratings news on Tenet Healthcare click here.

Shares of Tenet Healthcare closed at $17.01 yesterday.

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