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UPDATE: J.P. Morgan Moves Tenet Healthcare on Recent Weakness, Several Key Factors

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In a report published Tuesday, J.P. Morgan analyst Justin Lake moved Tenet Healthcare (NYSE: THC) from a Not Rated designation to an Overweight rating and $50.00 price target.

In the report, J.P. Morgan noted, “Following a period of restriction, we are moving to an Overweight rating and a December 2014 price target of $50 (OW rating and December 2013 $55 price target prior to restriction) from a Not Rated designation. While latest 4Q guidance was disappointing and adds uncertainty, the recent weakness in shares creates opportunity in our mind given several key factors. First, we see the combined THC/VHS as positively positioned for a shift to lower-cost care delivery with the ability to shift share in urban markets given strong participation in lowest cost exchange plans. Second, we view 4Q guidance/estimates as conservative given they imply a fairly flat sequential qtr for THC off what is typically the seasonally weakest qtr of 3Q. Third, the company will benefit in 2014 by $50m YoY from CA provider tax and lower HCIT costs and $150m of VHS synergies over next two years. Overall, we have set baseline estimates conservatively for the combined THC/VHS, assuming only 3.6% core EBITDA growth next year ex-items including $150m of synergies over 2 years ($75m in 2014). Given THC is already assuming flat YoY EBITDA in 2013, we think the risk-reward here is positively skewed around #'s post the recent reset.”

Tenet Healthcare closed on Monday at $42.11.

Posted-In: J.P. Morgan Justin LakeAnalyst Color Initiation Analyst Ratings

 

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