NEW YORK (TheStreet) -- Tenet Healthcare (THC) - Get Report stock is up by 1.25% to $56.90 in pre-market trading on Friday morning, after the healthcare services company was upgraded to "outperform" from "market perform" at Wells Fargo.
The firm said it upped its rating on Tenet Healthcare following yesterday's court decision regarding the Affordable Care Act.
Wells Fargo believes the court decision will allow less volatile and accelerated EBITDA growth to continue, driving multiple expansion.
"This is likely the final challenge to the Affordable Care Act (ACA) that will be heard by the Supreme Court (SCOTUS). We believe that shares of hospital stocks are likely to close some of the EBITDA multiple gap, which exists between them and the broader market. Our forecast for multiple expansion reflects the improved longterm visibility into financial results due to a continuing rise in the number of individuals with health insurance in the United States that began on 1/1/14," Wells Fargo said in an analyst note.
Separately, TheStreet Ratings team rates TENET HEALTHCARE CORP as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
"We rate TENET HEALTHCARE CORP (THC) a HOLD. The primary factors that have impacted our rating are mixed-some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income and revenue growth. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, weak operating cash flow and poor profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- TENET HEALTHCARE CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, TENET HEALTHCARE CORP turned its bottom line around by earning $0.32 versus -$1.20 in the prior year. This year, the market expects an improvement in earnings ($2.23 versus $0.32).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Health Care Providers & Services industry. The net income increased by 246.9% when compared to the same quarter one year prior, rising from -$32.00 million to $47.00 million.
- Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
- Net operating cash flow has significantly decreased to -$57.00 million or 200.00% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The debt-to-equity ratio is very high at 14.70 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, THC maintains a poor quick ratio of 0.71, which illustrates the inability to avoid short-term cash problems.
- You can view the full analysis from the report here: THC Ratings Report