Bank Of America Reports Solid 1Q11 Results On Tenet Healthcare

According to Bank of America, Tenet Healthcare THC 1Q11 results were solid, with improving volumes and margins. Bank of America said that it is bullish on hospitals who should see a decent spread between hospital pricing (driven by commercial) and their underlying cost trend. “Supplementing this, acquisitions are a key part of the investment thesis and should drive upside. While THC should benefit from the positive price/cost spread, it lacks the upside potential we see at other hospitals as THC's EBITDA historically doesn't convert into the FCF necessary to do deals. With a turnaround now in year 9, we believe Management needs to convince shareholders that it was the right move to turn away a bid that could have valued the stock at a 20%+ premium to where it currently trades. In the aftermath of the failed hostile bid by Community Health Systems (CYH), we are moving to a Neutral rating (from No Rating) as the stock is once again trading on fundamentals rather than takeout speculation. While we are positive on hospitals, we are rating THC Neutral with $6.75 PO (5.8x our 2011E EBITDA) as we prefer other hospitals which have more upside potential, Health Management Associates (HMA, $11.14, C-1-9/Buy, PO: $13) – turnaround + acquisitions, HCA (HCA, $34.41, C-1-9/Buy, PO: $40) - scale advantages.” Tenet Healthcare closed yesterday at $6.28.