Battleground: JPMorgan says sell, Citi says buy Tenet

Shares of Tenet Healthcare (THC) are sliding after JPMorgan analyst Gary Taylor downgraded the stock to Underweight, a sell-equivalent rating, citing his expectations for a negative impact from tax reform, its high relative balance sheet leverage and structural challenges for the hospital sector. This comes a day after his peer at Citi upgraded Tenet to Buy on a more constructive view of the industry and expectation of some "bounce" in patient volumes. SELL TENET: In a research note to investors this morning, JPMorgan's Taylor downgraded Tenet Healthcare to Underweight from Neutral, with an unchanged price target of $15. The analyst argued that he expects the company to underperform his coverage universe in 2018 due to key factors such as a negative impact from corporate tax reform, high relative leverage, structural challenges for the hospital sector and Tenet's long-term track record of poor free cash flow generation. The interest expense deduction limits in both the House and Senate bills would more than offset the decline in corporate tax rate for Tenet, he contended. BUY TENET: Yesterday, Citi analyst Ralph Giacobbe upgraded Tenet, alongside HCA Healthcare (HCA) and Universal Health (UNH), to Buy as he takes a more constructive view of the hospital space and expects some "bounce" in patient volume in 2018. While acknowledging the existence of structural pressures, he argued that a better volume backdrop in 2018 coupled with lower buyside expectations, depressed sentiment, discounted valuation, and favorable "external" factors - like tax reform and a lower Amazon (AMZN) risk than other sectors - sets up an attractive upside scenario. Further, the analyst told investors he is hopeful Tenet's divestiture plans and cost savings initiative are additional levers that should support and help improve its EBITDA. PRICE ACTION: In late morning, shares of Tenet have dropped over 3% to $14.31.