Bank Of America Reports Solid 1Q11 Results On Tenet Healthcare

According to Bank of America, Tenet Healthcare (NYSE: 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.