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Tenet Healthcare (THC) Upgraded To 'Buy' By Deutsche Bank; PT Raised

 December 17, 2012 03:02 PM

(By Balachander) Tenet Healthcare Corp. (NYSE: THC) shares were upgraded to "buy" from "hold" and price target raised to $38 from $31 by Deutsche Bank (DB).

"THC's response to CYH's overture left a lasting bad taste in our mouths," the bank wrote. "However, in taking a fresh look at THC, we conclude that its outlook has become more compelling."

DB said its upgrade is underpinned by clear signs of improving business mix and margins due especially to gains in outpatient, tangible momentum in Conifer, and a more sustainable FCF profile going forward.

Due to a more favorable outlook, the bank believes THC should be positioned to garner an in-line (~6x) fwd EV/EBITDA multiple, putting PT at $38.

[Related -Futures Down On China Worries; Vanguard Health Systems Inc. (VHSSurge]

The bank said most of the investor-owned chains will see 2013 EBITDA growth clustered in the low single-digit range, with organic growth for many in the 0 percent to 3 percent area.

THC's outpatient revenue mix has improved around 100 bps over the past year to 34 percent, yet it is still accelerating upward and this trend has positive margin implications, DB wrote.

The bank also believes M&A and business wins within the Conifer segment will draw even greater attention to segment revenue/EBITDA.

The stock, which has been trading in the 52-week range of $17.24 to $31.67, traded 2.29 percent higher at $31.33 on Monday.



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