This project seeks to enhance your understanding of financial statements, statistical tools and financial models along their applications to stock analysis. You and up to three additional group members will assume the role of an equities analyst focusing on Tenet Healthcare Corporation, working with a group totaling 3-4 students. Your task is to study Tenet Health Corporation, its securities and its financial statements to advise investors about the prospects of the company and its securities. You will prepare a report detailing your results with respect to valuation for the company stock. To provide data and technique that will be useful to your analysis, you will work through a series of problems outlined below. This project is expected to represent a single-group effort. Be certain to show all of your work. Do not share project results with others not in your group. Be certain that you provide proper citations and credit for all of your work.

1.  The focus for this project is Tenet Healthcare Corporation (THC), an NYSE-traded Fortune 500 firm. Record end-of-month stock prices for five years from December 2001 to December 2006 (sixty-one prices altogether). The stock price information can be obtained in ASCII or spreadsheet format from Yahoo Finance and from a variety of other sources.

2.  Record 61 months of values for the S&P 500 stock market index (^SPC is the symbol for Yahoo Finance) for the same periods as in Item 1.

3.  Compute for your stock each of the following:
     a.    60 monthly returns, one for each month to December 2006, based on the sixty months of stock price data for each stock and for the market. Adjust your market returns to allow for a dividend yield (not necessary if you use Yahoo Finance – this data is dividend adjusted).
     b.    historical return variance based on 60 monthly returns for both the stock and the S&P 500 index. Monthly variances and covariances can be annualized by multiplying by 12. Standard deviations are annualized by multiplying monthly standard deviations by the square root of 12. Indicate both monthly and annual variance statistics.
     c.    historical covariance between the stock and the index over the 60-month period. Indicate both monthly and annual variance statistics.
    d.    historical correlation coefficient between the stock and the index over the 60- month period. This value will not be affected by the interval of measure.
    e.    historical stock beta for the stock using the S&P 500 as the market index.

4.    Gather 10-k and other relevant SEC filings for Tenet from Tenet’s web site and/or from Edgar.gov. Perform a fundamental analysis based on financial statements to gauge the risk of Tenet’s stock. As part of your analysis, answer the following:
    a.    What is the Degree of Financial Leverage for Tenet? What is the Degree of Operating Leverage for Tenet? What is the level of Fixed Payments Leverage (total leverage) for Tenet?
    b.    Compare DOL, DFL and FPL along with other appropriate leverage ratios to those of Tenet’s industry peers.

5.    Based on your fundamental analysis of current balance sheet and income statement data, do your statistical historical estimates seem to accurately reflect the company's current risk position?

6.    If your answer to Question 5 is no, discuss how you would provide a revised risk estimate. If your answer is yes, justify it.

7.    What is the current one-year riskless return rate? (One will be sufficient. List both the rate and the date applicable to this rate, since the rate changes on a daily basis.)

8.    Suppose that the economist for your firm predicts a ten-percent return on the market portfolio over the next year. Based on the Capital Asset Pricing Model and your riskless return estimate, what return might you forecast for Tenet over the next year?

9. a.  Suppose that you intend to comprise an equally weighted portfolio of Tenet and each of the following stocks: IBM, Walmart and GE (weights are 1/4). Based on the CAPM, what would be the expected return and standard deviation of returns for this portfolio? Assuming the Capital Asset Pricing Model is correct, what are the expected return and variance of your portfolio? What is the beta of your portfolio?
    b.  Part a weights were .25. What would be optimal portfolio weights for this portfolio?

10.    What are the average growth rates associated with dividends, EPS and free cash flows for Tenet? For how long might you expect that these growth rates will be sustained? What do you think the dividend (and free cash flow) for your company will be in ten years? Why? What do you think the earnings growth rate for your company will be in ten years? What do you think will be the share price for this company in ten years? Justify all of your answers to this question, though, there is quite a bit of "guesstimation" required on your part.

11.    At what discount rate would you discount future cash flows or dividends for this company?

12.    Based on your answers to above questions, what do you think the present value of Tenet stock to be? That is, based on your answers to above questions, what do you think the intrinsic value of Tenet stock to be? Is it currently underpriced or overpriced by the market?

13.    Compile a list of what you believe to be Tenet’s financial strengths and weaknesses.

14.    Prepare a professional quality security analyst report for Tenet.

15.    Tenet options are listed on the American Stock Exchange. These listed options have standardized exercise prices and expiration dates that can be found on the AMEX website. What would be volatilities implied by each of these options?

16.    Provide a comment on the quality of corporate governance systems at Tenet. How has this changed in the past 5 years?

Your final project should show all of your work and properly cite all sources (including Web, periodicals and oral) for information. It may be useful to submit spreadsheets with calculations. Be certain that all work is your own. The following web sites may be helpful:

http://www.amex.com/
http://www.tenethealth.com/Tenethealth/InvestorCenter
http://fisher.osu.edu/~tomassini_1/fanon.html
http://webpage.pace.edu/jteall/Yale NYSSA Student Research Report.pdf
http://webpage.pace.edu/jteall/NYU NYSSA Student Research Report.pdf
http://finance.yahoo.com/?u
http://webpage.pace.edu/jteall/spreadsheets.htm
http://reportgallery.com/

Financial Database Comparison