Tenet Healthcare Inc. (THC - Free Report) stock is under pressure due to the coronavirus outbreak which requires hospitals to keep their elective procedures on hold to accommodate any potential surge in admissions.
The U.S. Centers for Disease Control (CDC) and Prevention has recommended that hospital elective procedures, surgeries and non-urgent outpatient visits be postponed once the virus has started to spread through a community.
If coronavirus cases continue to rise, hospitals might experience a surge in admissions, diagnostic requests, drug prescriptions and increased need for ICU capacity and staffing.
However, cancellation in elective surgeries to accommodate coronavirus-infected patients will hurt the company’s revenues, which is already highly leveraged. Notably, Community Health Systems is the most levered of the public hospitals with a 2019 net Debt/EBITDA of 8.1x compared with 5.7x for Tenet Healthcare and 3.4x for HCA Healthcare, Inc. (HCA - Free Report) .
Moreover, it is feared that coronavirus outbreak may cause recession. Such an economic situation may lead to loss of jobs, which would mean less number of people covered by private insurance and more number of people with insurance from Government health schemes – Medicare and Medicaid. Since profitability of the Government sponsored health insurance plans is lower than that covered under employer sponsored plans, margins of the hospitals are likely to take a hit. Higher number of individuals without sufficient health insurance cover might also lead to hospitals facing the issue of bad debts from unpaid medical bills.
Year to date, shares of Tenet Healthcare have lost 60.6% compared with the industry’s decline of 31%.
This decline in share price presents a good buying opportunity for investors. The stock carries a Zacks Rank #2 (Buy) and has an impressive Value Score of A. Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best opportunities in the value investing space.You can see the complete list of today’s Zacks #1 Rank stocks here.
Tenet Healthcare’s strategic divestitures have helped to streamline its business by focusing on core operations and debt repayment. Its spin-off of Conifer business, expected to close by the end of 2021, is likely to further reduce its debt burden. Accretive acquisitions are significantly strengthening its top line. Its cost-reduction program is likely to favor earnings.
Year to date, other companies in the same space such as Community Health Systems, Inc. (CYH - Free Report) , United Health Services, Inc. (UHS - Free Report) and HCA Healthcare have lost 12.4%, 43.1% and 42.9%, respectively.
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