Disclaimer: The information found on this site is meant for educational and informational purposes only. Nothing on this site should be construed as a recommendation or solicitation to buy or sell derivatives or securities or to trade any particular strategy. Trading of derivatives or securities has large potential risk and you must be aware of and accept all the risks. Past performance of any trading system or methodology is not necessarily indicative of future results. No representation is being made that any account will or is likely to achieve performance results similar to those discussed on this website. Hypothetical or simulated performance results have certain limitations and do not represent actual trading.

Wednesday, July 10, 2013

Tenet Healthcare Corp. (THC) Looks Vulnerable to Downside

eSignal Chart w/my custom indicators
 Tenet Healthcare Corp. (THC) stock price is looking vulnerable to the downside.

Technical Analysis:
1) lower peaks, lower troughs
2) RSI divergence most recent new high
3) Relative under performance of stock price vs SPY

Fundamental News Analysis:
1) 6/27/13:  Fitch Ratings Report states that hospital companies are experience systemic shifts in care delivery. Persistent weak trends in organic volume growth...

2) 6/24/13: THC agrees to acquire VHS for $4.3 billion including debt in a deal.  THC offer $21 a share, 70% premium over previous day's close of $12.37.

LiveVolPro Chart
3) 6/6/13 Deutsche Bank upgrades THC due to prospects for THC to acquire other hospital chains (previous close $44.37).  4/10/13: Deutsche Bank had downgraded THC (previous close $43.52)

4) 4/29/13:  THC moves sharply higher on a pair of upgrades from Baird & UBS (upgrade comes after 1Q earnings announcement, closing price $43.84)

So basically, current price of $43.17 is below the stock prices of days where most recent analyst upgrades came.  More significantly, THC has Long-Term Debt / Equity Ratio of 5.55 as of 1Q 2013 balance sheet compared to UHS Long-Term Debt / Equity Ratio of 1.29.  This is prior to THC announced takeover of VHS and plans to take on more debt.  The recent significant spike and uptrend in interest rates cannot be good for THC's financials moving forward.

Finally, the announced one-year delay in Obamacare's employer mandate is also seen as a blow to short-term stock price momentum.

In terms of options pricing, the Realized (30-day) Volatility Indicator has been declining and last value was 40.65.  However, for the past few months, realized volatility has averaged around 45.  The implied volatility of August 43 strike options stands at 43.5, so I would say August IV is slightly cheap, considering August is an earnings month.  THC announced its earnings report date to be August 6, 2013.

Volatility Strategy:  Buy August 43 straddle and scalp gamma into earnings.
Directional Strategy: Buy the Aug 43/39/37 broken-wing put butterfly for 1.03 mid-point value.

No comments:

Post a Comment