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Tenet Healthcare (THC) Shuffles Top Brass: What to Expect?

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Tenet Healthcare Corporation (THC - Free Report) has announced that its chairman and CEO Trevor Fetter will quit his position of director and chief executive officer. This will be effective Mar 15, 2018, or earlier when the company finds a suitable replacement.

Though Mr. Fetter will remain in his role, he will not be regarded as the most senior official.

Among other changes, the company has appointed the current independent lead director Ronald A. Rittenmeyer as the executive chairman, effective immediately. He will also be regarded as the senior most official at the company till the new CEO holds reins.
The company’s board composition will also be reviewed to sharpen management’s expertise in areas required for its long-term growth.

The company has also implemented shareholder rights plan to protect net operating losses which were $1.7 billion as of Dec 31, 2016. This implies that the company will be able to save $600 million in tax at a 35% tax rate.

This change in Tenet Healthcare’s leadership position comes at a time when it is in rough waters. The company’s results have been suffering from a decline in admissions, inpatient and outpatient surgeries, emergency department visits and total outpatient visits.

This also caused the company to post loss in last two quarters and miss earnings estimates in three quarters in a row prior to that.

Tenet Healthcare has also reduced its earnings guidance for 2017 after lackluster performance in first-half 2017.

The stock has given a poor performance in past one year as evident by a loss of 29.1% compared with the industry’s loss of 4.2%.

We believe it will be no mean task for the new leader to restore the company’s profitability. Though on a company-specific level, assets sales by management will help it to reduce high leverage but its top line will continue to be troubled by weak volume trends expected to continue throughout the industry.

The hospital industry is suffering from low patient admissions as they are increasingly choosing to stay away from hospitals due to high out-of-pocket (which shift the initial costs to patients) costs. Also, a pullback of insurers from public exchanges has increased the uninsured rate which in turn is hurting the company.  Given the continued uncertainty about the future of Obamacare, the present scenario is likely to continue in the quarters ahead which will drain the company’s business volumes.

Other players in the industry like HCA Healthcare, Inc. (HCA - Free Report) , Community Health Systems Inc. (CYH - Free Report) , United Health Services, Inc. (UHS - Free Report) have been suffering from the industry weakness.

HCA Healthcare and Universal Health missed the second-quarter earnings estimates and cut their 2017 earnings guidance.  Community Health on the other hand posted loss in the second quarter and reduced its 2017 earnings guidance.

Tenet Healthcare carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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