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Triad Hospitals, Inc. (TRI)
Investment Rating
HOLD                         I. Investment Highlights
                      ...
II. Executive Summary

Triad Hospitals is a Fortune 500 company, publicly traded and is listed on the New York
Stock Excha...
Triad Subsidiaries

Quorum Health Resources, LLC (QHR) and Triad Hospitals, Inc. completed its merger in
2001 and since, Q...
also property damage at the facilities in Mississippi and Louisiana. According to Triad’s
quarterly annual report, it esti...
The hospital industry remains highly competitive among health care providers and
hospitals for patients. Mainly in urban a...
Triad believes that small cities are attractive to health care providers because of the
favorable demographic, economic, a...
Trend Analysis (Triad Hospitals vs. S&P500)




It appears that overall Triad Hospitals has out performed the S&P over the...
The chart above shows Triad Hospitals vs. the S&P500 over the last 3 months and shows
that Triad has been decreasing since...
Revenue forecasts

Earnings Estimates (next quarter Mar 2006)          $ 0.87
Revenue Estimates (next quarter Mar 2006)   ...
Triad Hospitals Inc. is traded on the New York Stock Exchange and the average volume
in the last three months is 1,041,070...
Both the Future Dividends with Constant Growth and Value of Stock using the Constant
Growth Model can not be used due to t...
The key statistics of Triad Hospital’s performance and relevant ratios as of November 5,
2005 (information taken from Reut...
Holder                             Shares        % Out    Value*           Reported
EQUINOX CAPITAL
                      ...
revenues in the 4th quarter of 2004 decreased $10.8 million and Triad is anticipating this
number to increase this year.

...
After analyzing Triad Hospitals, Inc. and reviewing the industry as well as their
performance, determining whether to hold...
A. Income Statement

  B. Balance Sheet

  C. Cash Flow Statement

  D. Location Map

  E. Practices Performed

  F. Evalu...
Gross Profit                                    2,658,800    2,288,800   1,993,700
      Operating Expenses
      Research...
Net Receivables                   711,900          643,500      569,700
       Inventory                         117,500  ...
Adjustments To Net Income                       482,100      505,500     365,300
Changes In Accounts Receivables          ...
A majority of the acute care facilities run by Triad Hospitals, Inc are located in the
southern part of the United States.
SPECIALTIES

Anesthesiology
 Neurosurgery
Bariatric Surgery
 Obstetrics & Gynecology
Cardiology
 Occupational Therapy
Card...
The chart below shows stock prices and the correlation with the market over the last
year.
Date     StkX    MeanX   (X-M) ...
6 year stock prices of Triad vs. S&P
   Date      Stock         ER          Excess Return     S&P       Returns       Exce...
4-Feb-02      30.6   -0.109947644   -4.409947644    1106.73   -0.035436948   -4.335436948
2-Jan-02      31.7    0.03594771...
References

http://fiannce.yahoo.com

www.triadhospitals.com

www.Reuters.com

http://news.yahoo.com

www.morningstar.com
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  1. 1. Triad Hospitals, Inc. (TRI) Investment Rating HOLD I. Investment Highlights Company Profile Pricing (11/8/05) Headquartered in Plano, Texas, Triad Hospitals Closing Price $40.86 Incorporated, owns and manages hospitals and 52 Week High $56.17 ambulatory surgery centers in small cities and selected 52 Week Low $34.48 larger urban markets. Led by Chairman, President, and CEO, James Shelton, Triad Hospitals currently operates Valuation 54 hospitals and 15 ambulatory centers in 15 states with Dil EPS P/E approximately 9,125 licensed beds. Triad hospitals TTM $2.712 provide a range of services, such as internal medicine, $15.07 general surgery, cardiology, oncology, neurosurgery, 2005E orthopedics, obstetrics, diagnostic, and emergency $12.65 services. These hospitals also offer outpatient and Profitability & ancillary health care services, such as outpatient surgery, Effectiveness laboratory, radiology, respiratory therapy, cardiology, ROA (ttm) 6.04% and physical therapy. Through its subsidiary, Quorum ROE (ttm) 8.82% Health Resources, LLC; Triad supplies hospital Net Profit Margin (ttm) management, consulting, and advisory services to over 4.6% 180 independent health systems all over the United Operating Margin (ttm) States. Triad hospitals are primarily located in Southern, 9.68% Midwestern, and Western states, broken into fives divisions each consisting of a Division President and Market Data CFO. The main competitors of Triad are HCA Inc. and Total Assets (as of 12/04) Tenet Healthcare Corporation. Triad’s formation in $4,981,400 1999 was a spin off of from the Pacific Health group, Debt/Equity 0.595 HCA. Triad is also a minority investor in three joint Volume 514,200 ventures that own seven acute care centers in Georgia Market Cap $3.52 B and Nevada. Avg. Vol.(3mon)1,053,500 EPS (ttm) 2.712 Growth Dynamics P/E (ttm) 15.07 This past quarter revenue rose 9.6 percent to $1.19 Forward P/E 12.65 billion. From 2003 to 2004 Triad Hospitals increased facility revenues 8.3% and continuing operations increased from $104.5 million to $138 million while Tiffany Newman operating expenses as a percentage of revenue remained ten5e6@mizzou.edu constant at 18.7%. Impatient and outpatient surgeries increased from 4.4% to 5% respectively over the last year. Triad also expects that revenues will be up 5-6% *ttm-trailing 12 months this year compared to 2004. Due to new services and enhanced capacity from recent completed capital projects, Triad was able to increase admissions. After the acquisition of eight hospitals and the opening of another between 2003 and 2004, Triad was able to increase revenues, admissions, surgeries, and visits.
  2. 2. II. Executive Summary Triad Hospitals is a Fortune 500 company, publicly traded and is listed on the New York Stock Exchange. Currently, Triad owns and operates 54 hospitals and 13 ambulatory surgery centers, and manages 200 non-profit hospitals around the country. Triad Hospitals, Inc. is one of the largest publicly owned hospital companies in the United States and currently employees over 38, 600 people. Three out of 54 hospitals are represented by labor unions and Triad does not expect this do affect its ongoing operations in the future. Triad has new hospitals under construction in Palmer, Alaska, and Dublin, Ireland. Recently, the company announced plans to build new facilities in Clarksville, Tennessee, Birmingham, Alabama, and Cedar Park, Texas. Physicians are generally not employees of Triad’s hospitals and are usually contracted under a term of service. Triad Hospitals, Inc. plans to continue expanding services through acquisitions, subsidiaries, joint ventures, and non-profit hospitals. Investment Recommendation: HOLD Pros: + Global expansion and opportunity for growth + Outperformed S&P over the previous year + Growth through acquisitions + Increasing NI over the last two years + Low Beta Balances our portfolio Cons: -- Decreased third quarter earnings -- Rising costs to operate a hospital facility -- Government control over Medicare/Medicaid -- Hospital Industry highly competitive -- Litigations and claims against QHR --Decrease and under the market over the last three months III. Company Description Triad Hospital’s acute-care facilities provide a full range of services, including internal medicine, general surgery, cardiology, oncology, neurosurgery, orthopedics, obstetrics, diagnostics, and emergency services. Triad's acute care hospitals also provide outpatient and ancillary services such as outpatient surgery, laboratory, radiology, respiratory therapy, and physical therapy. These outpatient services are also offered through Triad's ambulatory surgery centers. Through the joint ventures, Triad admits over 5,000 patients out of the total 318,000.
  3. 3. Triad Subsidiaries Quorum Health Resources, LLC (QHR) and Triad Hospitals, Inc. completed its merger in 2001 and since, QHR provides over 180 acute care hospitals around the United States with management and consulting services. QHR asses each hospital and in return assists them in improving their financial performance and scope of their services. QHR has five regional offices located throughout the United States. The five year contracts that QHR enters into with a hospital typically have a 79% renewal rate. Leadership James Shelton a member of the board of trustees of the American Hospital Association is currently serving as a Chairman of the Board, President, and Chief Executive Officer of Triad since its spin off from HCA. Prior to Triad, Mr. Shelton served as Vice President of the Central Division of what now is known as Tenet Healthcare and President of the Pacific Group of HCA. Both Tenet and HCA are Triad’s main competitors. Shelton completed his master’s degree in Public Administration from the University of Missouri in 1977. Michael Parson has also served with Triad since the spin off from HCA in 1999 and previously worked with the Pacific Group of HCA. Parsons currently is the Executive Vice President and Chief Operating Officer and Director of Triad. MAJOR DIRECT HOLDERS (FORMS 3 & 4) Holder Shares Reported SHELTON, JAMES D. 350,740 3-Oct-05 FRIST, THOMAS F. III 183,985 24-May-05 WHITMAN, BURKE W. 99,124 3-Oct-05 PARSONS, MICHAEL J. 50,047 1-Nov-05 LOVE, W. STEPHEN 23,462 25-Feb-05 A total of 1% of all shares held are by insiders and 5% owners. IV. Economic and Industry Environment In the third quarter of 2005, Triad's hospitals and ambulatory surgery centers in Mississippi, Louisiana, and Texas were directly and indirectly impacted by the hurricanes. Also, recent articles on Monday, October 24th, reported slightly lower third- quarter profit on slowing patient admissions which lowered the range of its full-year earnings forecast, sending its shares down 4.7 percent. Triad had to evacuate the facilities in Louisiana and Texas and therefore was not operational for three to eight days. The facility in Louisiana was not operational until the first week of October. There was
  4. 4. also property damage at the facilities in Mississippi and Louisiana. According to Triad’s quarterly annual report, it estimates the 2005 revenues were reduced by $2.7 million and income from continuing operations was reduced by $1.6 million, or $0.02 per diluted share. As of September, Triad had over $2.9 million of accrued estimated costs, in addition to costs paid during the quarter, and has recorded an estimated receivable for insurance reimbursement of approximately $3.8 million. In addition to the hurricanes, Triad also needs to be concerned with the government’s actions with Medicare and Medicaid. The amounts under the Medicare and Medicaid programs are significantly less than the hospital’s customary charges. Medicare has special provisions with sole-community hospitals (those without competition within 35 miles), 8 hospitals of which Triad operates falls into this category. This includes a higher reimbursement rate and a guarantee capital reimbursement of 90% of capital cost. Triad received an $11 million reimbursement from MMA; a law changing some provisions of Medicare signed in 2003, and anticipates $13 million in 2005. As government wants to reduce the amount of Medicaid funding while expanding the benefits provided, this could affect future reimbursement levels for Triad. According to an article found on Reuters, US Medicare will increase payments 5.2% in 2006, which would provide a 3.7% increase to acute care centers, like Triad. Medicare stated community hospitals in rural areas that serve as the sole provider will receive 7.1% in addition. The article mentioned this is all due to inflation. The hospital industry as well as Triad, has been affected by the trend toward more out patient procedures rather than in patient procedures. This is due to the increased advancement of medical technology and pharmaceuticals. Triad expects the growth rate in outpatient services to increase continually in the future and therefore has recently enhanced the hospitals outpatient capabilities in many ways. Triad has been reconfiguring hospitals to become more effective by providing a more convenient registration, separate entrances, and reconstructing surgical centers to allow a greater number and range of procedures to be preformed. Revenue Estimates Current Qtr Next Qtr Current Year Next Year Avg. Estimate 1.26B 1.35B 4.86B 5.35B No. of Analysts 17 11 20 19 Low Estimate 1.18B 1.28B 4.79B 5.10B High Estimate 1.35B 1.42B 5.05B 5.67B Year Ago Sales N/A 1.21B N/A 4.86B Sales Growth N/A 11.1% N/A 9.9% Competition
  5. 5. The hospital industry remains highly competitive among health care providers and hospitals for patients. Mainly in urban areas, Triad hospitals compete with facilities that offer more extensive medical research and education programs that are not offered at Triad. These larger hospitals provide highly specialized equipment and services that are causing patients to migrate away from Triad. HCA, Inc. recently opened ten new hospitals in Texas. Triad Hospitals currently owns seven hospitals through joint venture entities where Triad is the minority owner and HCA is the majority owner. In addition, some of the hospitals that compete with Triad are non-profit or sponsored by government agencies, endowments, and charity. Therefore these hospitals can make large capital expenditures and be exempt from taxes. Company Symbol Price Change Market Cap P/E HCA Inc. HCA 48.14 -0.02% 21.79B 15.25 Health Management Associates Inc. HMA 20.99 -0.05% 5.19B 15.37 Tenet Healthcare Corp. THC 7.90 -3.66% 3.71B N/A Triad Hospitals Inc. TRI 41.60 -0.22% 3.58B 15.34 Community Health Systems, Inc. CYH 36.98 +0.30% 3.27B 21.60 Universal Health Services Inc. UHS 45.97 -1.56% 2.56B 10.62 The above chart ranks Triad Hospital’s biggest competitors according to market capital. V. Company Position Market Information Most of Triad’s facilities are located in the Southern, Midwestern, and Western United States with ¾ of those hospitals in small cities with a population less than 150,000 and more than 60 miles from an urban center. Triad operates hospitals in over 15 states with more than half of those facilities found in Texas, Arkansas, Alabama, and Indiana. Product Development In 2004, eight of the hospitals operated by Triad implemented the use of Medstat, a market intelligence program, to increase and monitor the quality of patient care. The small cities will be able to support specialty services that Triad provides and generally those services generate higher revenues than other health care services. Since managed care is lower in rural areas Triad is in a good position to negotiate favorable contracts for managed care. Inside the urban markets that Triad provides acute care centers, Triad faces competition from other health care providers, higher managed care penetration, and more programs such as HMO’s and PPO’s. Demographics
  6. 6. Triad believes that small cities are attractive to health care providers because of the favorable demographic, economic, and competitive conditions. Therefore Triad primarily prefers to open facilities in rural and small city environments. This decreases competition from larger hospitals. Threat of Substitution Within the small cities that Triad operates, 22 of these hospitals are the sole provider of healthcare, and 18 hospitals are only competing with one or two others. Only 12 of the 52 hospitals that Triad operates are located in larger urban areas where they are subject to more direct competition. Image Triad continuously strives to improve the quality of healthcare services provided to the communities it serves. The foundation of its operating strategy works cooperatively and collaboratively with physicians, communities, and employees to actively involve everyone in decision making. Networking with non-for-profit hospitals helps Triad become a preferred partner helping them improve performance. Management Quality QHR, Triad’s subsidiary, provides management and consulting services to over 180 non- for-profit hospitals. The Physicians Leadership Group (PLG) and the Nursing Leadership Group (NLG) involves meeting with key employees at each hospital monthly to maintain good relations and discuss how to improve operations. Triad believes this increases morale, retention, and higher patient satisfaction. VI. Financial Statement Analysis Accounting Procedures Inventory Evaluation: Triad Hospitals, Inc. has an increased amount of inventory from $111.7 to $117.5 million in 2003 and 2004 respectively. Deprecation: Primarily due to the acquisition of seven hospitals in the last quarter of 2003 and some capital projects in 2004, depreciation and amortization have both increased. From the year ended 2003, $165.6 million to the year ended 2004, $186.4 million. Intangibles: Triad evaluates the carrying value of intangible assets to be long lived assets and recognizes impairment losses when the fair value is less than the carrying value. Pensions: Triad’s employee benefit plans include a defined benefit plan for both unionized and non-unionized employees. Triad contributes to these plans periodically throughout the year. In 2004, Triad recorded expenses of $41.4 million. Financial Ratios
  7. 7. Trend Analysis (Triad Hospitals vs. S&P500) It appears that overall Triad Hospitals has out performed the S&P over the last year at every interval except at the year ending 2004 it did the same as the S&P. Triad Hospitals vs. Industry and S&P500 (five most recent days as of Nov. 4th) Here we notice that Triad Hospitals is highly correlated to both the industry and S&P movement.
  8. 8. The chart above shows Triad Hospitals vs. the S&P500 over the last 3 months and shows that Triad has been decreasing since August. Direct Competitor Comparison to Industry and Competitors Direct Competitor Comparison Triad Ascension HCA Tenet TRI Private HCA THC Industry Market Cap: 3.57B N/A 21.79B 3.71B 3.54B 1 Employees: 28,100 87,469 137,900 65,059 28.10K Qtrly Rev Growth (yoy): 6.60% N/A 4.00% -3.40% 15.10% Revenue (ttm): 4.79B 9.05B1 24.22B 9.76B 4.79B Gross Margin (ttm): 82.25% N/A 83.11% 36.97% 43.69% EBITDA (ttm): 716.40M N/A 4.22B 675.00M 675.00M Oper Margins (ttm): 9.68% N/A 11.01% 2.96% 7.41% Net Income (ttm): 225.90M N/A 1.42B -1.64B 220.60M EPS (ttm): 2.712 N/A 3.156 -4.525 2.71 P/E (ttm): 15.30 N/A 15.25 N/A 15.17 PEG (5 yr expected): 0.96 N/A 1.33 N/A 1.24 P/S (ttm): 0.75 N/A 0.90 0.39 0.64 Triad Hospitals is not the largest in the hospital industry by market capital or revenue, but they continue to have a higher growth rate than its competitors. According to EPS, HCA has a greater value than Triad, over the last year. While the P/E ratio is higher at Triad than HCA meaning that there could be high hopes in the future of Triad’s stock. VII. Financial Forecasts (from analysts)
  9. 9. Revenue forecasts Earnings Estimates (next quarter Mar 2006) $ 0.87 Revenue Estimates (next quarter Mar 2006) $ 1.35 B Growth Estimates (this year) 16.8 % Earnings Trends EPS Trends Current Qtr Next Qtr Current Year Next Year Current Estimate 0.70 0.87 2.85 3.23 7 Days Ago 0.74 0.91 2.89 3.32 30 Days Ago 0.74 0.90 2.90 3.32 60 Days Ago 0.74 0.90 2.90 3.32 90 Days Ago 0.74 0.90 2.90 3.32 From the earnings chart we can notice that earning are projected to be less in the next quarter from previous estimates, this could be from the affects of the hurricanes and the increasing inflation. This decrease in estimated earnings could cause concern for Triad’s stock price if the company does not meet its earnings estimates. Growth Estimates and Trend Analysis Growth Estimates TRI Industry Current Qtr. N/A 11.8% Next Qtr. N/A 11.9% This Year 16.8% 16.7% Next Year 13.3% 15.0% Next 5 Years (per annum) 15.0% 14.65% Price/Earnings (avg. for comparison categories) 14.4 21.53 The growth estimates for Triad appears to out perform the industry in the long run of 5 years. This year’s estimates are higher than the industry by 0.1% and less than the industry in the following year by 1.7%. This shows that next year is not an estimated growing year but the years to come in the future will be. VII. Analysis of Risk Marketability
  10. 10. Triad Hospitals Inc. is traded on the New York Stock Exchange and the average volume in the last three months is 1,041,070. Total Risk The price for Triad Hospitals 52 week low is $34.11 and the high is $56.17. Systematic Risk The standard deviation is 7.056 The correlation with market is 0.015019 The Beta according to Reuters.com was -.28 The Beta calculated with the excess returns over the last year is .665 and the Beta calculated using the last six years of returns was -.0227. IX. Fundamental Valuation Estimation of Required Rate of Return The required rate of return is estimated using estimates from the previous years. The current federal funds rate is 4.0% and the historical equity premium on the market is 6.38%. Using the Beta Reuters.com has estimated on Triad Hospitals of -0.28 and the risk free rate is 4.3, the required rate of return using the Capital Asset Pricing Model is 2.5%. Re = Rf + β (Equity Risk Premium) Re = 4.3 + (-0.28) (6.38) = 2.5136 % Using the Beta calculated with the 1 year excess returns over the market, the required rate of return is higher at 8.5427% Re = 4.3 + (.665) (6.38) = 8.5427% Dividends Triad Hospitals, Inc. currently does not pay out dividends and is restricted from paying dividends by certain indebtedness covenants. (Triad Hospitals, Inc. annual report) Valuation
  11. 11. Both the Future Dividends with Constant Growth and Value of Stock using the Constant Growth Model can not be used due to the fact that Triad Hospitals, Inc. does not pay out dividends. Using the P/E valuation method, Triad’s stock is valued at $41.46. Est. P/E * EPS = 15.30*2.71 = $41.46 After calculating numbers using the affordable dividend growth model, it estimates that the stock is not over or under valued. D=d*EPS D=0.81*2.712=2.196 This means that Triad would be able to afford to pay out dividends of $2.20. Affordable Dividend Payout Ratio Estimate p d 0.814034 2004 2003 2002 EBT 337 298 372 g 0.09 Sales 4,450 3,865 3,541 i 0.3 EBT/S 0.076 0.077 0.105 0.086 p 0.08 0.151358 0.0915 t 0.25 L 1.22 Estimate tax rate Tax 85 65 94 Tax rate 0.252226 0.218121 0.252688 0.24 EPS 2.712 d 0.814034 Estimate L 2.207661 Total liab 2,638 2,659 2,427 Equity 2,343 2,076 1,954 D/E 1.13 1.28 1.24 1.22 Estimate f Cap exp 436 281 296 Deprec 186 176 167 int rate 0.067827 f 0.247863 -0.07407 risk pr 0.05 rr 0.117827 Estimate w 0.12 CA 1,014 927 844 w 0.148718 0.256173 80.21168 i 0.396581 0.182099 0.29 Financial Summary
  12. 12. The key statistics of Triad Hospital’s performance and relevant ratios as of November 5, 2005 (information taken from Reuters.com and finance.yahoo.com) General Information Revenue (ttm): 4.79B Revenue Per Share (ttm): 60.122 Qtrly Revenue Growth (yoy): 6.60% Gross Profit (ttm): 2.66B EBITDA (ttm): 716.40M Net Income Avl to Common 225.90M (ttm): Diluted EPS (ttm): 2.712 Qtrly Earnings Growth (yoy): -5.90% Total Cash (mrq): 373.70M Total Cash Per Share (mrq): 4.343 Total Debt (mrq): 1.70B Total Debt/Equity (mrq): 0.595 Current Ratio (mrq): 2.879 35.01599 Book Value Per Share (mrq): 9 From Operations (ttm): 427.50M Free Cashflow (ttm): -1.24M Holders TOP INSTITUTIONAL HOLDERS
  13. 13. Holder Shares % Out Value* Reported EQUINOX CAPITAL 4,595,125 5.34 $208,021,308 30-Sep-05 MANAGEMENT Calamos Advisors LLC 2,742,990 3.19 $149,876,973 30-Jun-05 FMR CORPORATION (FIDELITY MANAGEMENT & RESEARCH 2,728,399 3.17 $149,079,721 30-Jun-05 CORP) WELLINGTON MANAGEMENT 2,676,992 3.11 $146,270,842 30-Jun-05 COMPANY, LLP UNITED STATES TRUST 2,639,938 3.07 $144,246,212 30-Jun-05 COMPANY OF NEW YORK BARCLAYS BANK PLC 2,572,267 2.99 $140,548,668 30-Jun-05 WADDELL & REED FINANCIAL 2,438,450 2.83 $133,236,908 30-Jun-05 INC. FRIESS ASSOCIATES INC 2,144,000 2.49 $117,148,160 30-Jun-05 JP MORGAN CHASE & 2,100,131 2.44 $114,751,157 30-Jun-05 COMPANY VANGUARD GROUP, INC. (THE) 1,991,973 2.31 $108,841,404 30-Jun-05 TOP MUTUAL FUND HOLDERS Holder Shares % Out Value* Reported CALAMOS GROWTH FUND 1,950,000 2.27 $106,548,000 30-Jun-05 VANGUARD/WINDSOR II 1,846,195 2.15 $94,617,493 30-Apr-05 VANGUARD SELECTED VALUE 1,704,600 1.98 $87,360,750 30-Apr-05 FUND WADDELL & REED ADVISORS FDS-SCIENCE & TECHNOLOGY 1,498,700 1.74 $81,888,968 30-Jun-05 FUND BRANDYWINE FUND, INC. 1,361,400 1.58 $74,386,896 30-Jun-05 FIDELITY VALUE FUND 1,086,750 1.26 $53,978,872 31-Jul-05 PIONEER MID CAP VALUE 825,000 .96 $42,281,250 30-Apr-05 FUND COLLEGE RETIREMENT EQUITIES FUND-STOCK 800,741 .93 $40,117,124 31-Mar-05 ACCOUNT FIDELITY ADVISOR EQUITY 710,900 .83 $36,056,848 31-May-05 GROWTH FUND Other Issues: In 2004, Triad Hospitals, Inc. implemented a self pay discount program to offer discounts to uninsured patients based on financial and personal need. Due to this new program,
  14. 14. revenues in the 4th quarter of 2004 decreased $10.8 million and Triad is anticipating this number to increase this year. Triad’s patient accounts receivable from patient responsibility accounts is the largest component of the bad debt expense. To improve upfront collections, Triad instituted an incentive program for its employees. Triad continues to expand through acquisitions of acute care centers in select markets and formation of joint ventures with other providers including non-profit health centers. Triad entered into an agreement to lease a hospital in Dublin, Ireland and predicts it to commence in 2006. Triad’s capital expenditures of expanding and acquiring new hospitals is funded with operating cash flows, its existing credit facility, and proceeds from the sale of securities. At the end of 2004, Triad’s contract obligations total over $2138.9 million. There are currently three false claims litigations against, Triad’s subsidiary, QHR from 2001, 2003, and 2004. Complaints are for submitting false claims for reimbursement from the government and improper allocation of costs. If QHR is guilty for violations of federal or state laws relating to Medicare or Medicaid, Triad could be excluded in the future from the participation in government programs such as these. Investigation is still underway and if convicted, Triad will be faced with large fines. Negotiating a settlement is a possibility, but could also adversely affect Triad’s operations and financial position. XI. Conclusion After evaluating the information in this paper, there are some concerns with the performance of Triad Hospitals, Inc. and the overall industry. Triad is in a highly saturated market with lots of competition from other health care providers. Currently Triad is trying to expand globally; this may increase the opportunity to find new markets. The growth through acquisitions of non-profit organizations may also bring about a positive outcome for Triad’s revenue and performance. Statistics show that Triad has had an increasing Net Income over the last two years and outperformed the S&P over the last year. Both of these things are attractive to investors. At the same time, in response to the damages and loss that the hurricanes brought about, Triad’s third quarter earnings and the estimated earnings for the future both demonstrate a decrease. Therefore current stock prices are decreasing. There is still uncertainty as for the litigations and claims against QHR, Inc; they still are waiting for a verdict. The hospital industry as a whole is experiencing the rising prices to operate facilities, pay salaries, and to continue to keep up with medical advancements. Investment Recommendation: HOLD
  15. 15. After analyzing Triad Hospitals, Inc. and reviewing the industry as well as their performance, determining whether to hold or sell the shares is a difficult decision. Although the current performance is not extremely great, there is opportunity for growth in the future. Holding the stock would be the overall suggestion at least until a sign of upward movement in the stock price. Pros: + Global expansion and opportunity for growth + Outperformed S&P over the previous year + Growth through acquisitions + Increasing NI over the last two years + Balances our portfolio with a very low Beta Cons: -- Decreased third quarter earnings -- Rising costs to operate a hospital facility -- Government control over Medicare/Medicaid -- Hospital Industry highly competitive -- Litigations and claims against QHR --Decrease and under the market over the last three months . ------------------------------------------------------------- Disclaimer: This analysis does not necessarily reflect the beliefs of the University of Missouri-Columbia or the College of Business. The insights and opinions are of the students of Investment Funds Management and should not be used in personal investment decisions. The University of Missouri and the authors of this analysis take no responsibility for the validity of the valuation and analysis APPENDIX
  16. 16. A. Income Statement B. Balance Sheet C. Cash Flow Statement D. Location Map E. Practices Performed F. Evaluation of Excess Returns a. 1 year b. 6 years INCOME STATEMENT 31-Dec-04 31-Dec-03 31-Dec-02 Total Revenue 4,450,200 3,865,900 3,541,100 Cost of Revenue 1,791,400 1,577,100 1,547,400
  17. 17. Gross Profit 2,658,800 2,288,800 1,993,700 Operating Expenses Research Development - - - Selling General and Administrative 1,623,400 1,381,600 1,204,600 Non Recurring - 54,800 (14,900) Others 640,100 573,600 440,200 Total Operating Expenses - - - Operating Income or Loss 395,300 278,800 363,800 Income from Continuing Operations Total Other Income/Expenses Net (73,400) 28,100 23,400 Earnings Before Interest And Taxes 337,000 298,800 372,400 Interest Expense 113,700 133,800 136,700 Income Before Tax 223,300 165,000 235,700 Income Tax Expense 85,300 65,600 94,200 Minority Interest (5,400) (8,100) (14,800) Net Income From Continuing Ops 138,000 99,400 141,500 Non-recurring Events Discontinued Operations 53,000 (4,200) - Extraordinary Items - - - Net Income 191,000 95,200 141,500 Preferred Stock And Other Adjustments - - - Net Income Applicable To Common Shares $191,000 $95,200 $141,500 BALANCE SHEET 31-Dec-04 31-Dec-03 31-Dec-02 Assets Current Assets Cash And Cash Equivalents 56,800 15,200 68,300 Short Term Investments - - -
  18. 18. Net Receivables 711,900 643,500 569,700 Inventory 117,500 111,700 95,500 Other Current Assets 128,100 156,800 110,900 Total Current Assets 1,014,300 927,200 844,400 Long Term Investments 198,900 191,100 179,700 Property Plant and Equipment 2,338,700 2,168,600 1,955,200 Goodwill 1,253,000 1,253,100 1,224,000 Intangible Assets 72,000 71,500 72,000 Accumulated Amortization - - - Other Assets 104,500 123,900 106,300 Deferred Long Term Asset Charges - - - Total Assets 4,981,400 4,735,400 4,381,600 Liabilities Current Liabilities Accounts Payable 261,400 277,600 272,800 Short/Current Long Term Debt 79,700 74,500 73,100 Other Current Liabilities 161,600 155,000 99,300 Total Current Liabilities 502,700 507,100 445,200 Long Term Debt 1,587,300 1,685,000 1,618,900 Other Liabilities 139,000 118,100 86,600 Deferred Long Term Liability Charges 218,300 174,700 151,100 Minority Interest 190,800 174,200 125,300 Total Liabilities 2,638,100 2,659,100 2,427,100 Stockholders' Equity Common Stock 800 800 700 Retained Earnings 381,200 190,200 95,000 Capital Surplus 1,976,800 1,904,600 1,883,500 Other Stockholder Equity (15,500) (19,300) (24,700) Total Stockholder Equity 2,343,300 2,076,300 1,954,500 Net Tangible Assets $1,018,300 $751,700 $658,500 CASH FLOW STATEMENT 31-Dec-04 31-Dec-03 31-Dec-02 Net Income 191,000 95,200 141,500 Operating Activities, Cash Flows Provided By or Used In Depreciation 186,400 176,400 167,400
  19. 19. Adjustments To Net Income 482,100 505,500 365,300 Changes In Accounts Receivables (497,100) (463,900) (332,700) Changes In Liabilities (7,500) 43,900 18,200 Changes In Inventories (14,000) (19,500) (23,100) Changes In Other Operating Activities 17,100 26,200 21,700 Total Cash Flow From Operating Activities 358,000 363,800 358,300 Investing Activities, Cash Flows Provided By or Used In Capital Expenditures (436,000) (281,100) (296,600) Investments - - - Other Cashflows from Investing Activities 226,100 (155,400) 34,800 Total Cash Flows From Investing Activities (209,900) (436,500) (261,800) Financing Activities, Cash Flows Provided By or Used In Dividends Paid - (7,600) (11,700) Sale Purchase of Stock 63,500 14,800 52,500 Net Borrowings (169,300) 12,400 (85,300) Other Cash Flows from Financing Activities - - - Total Cash Flows From Financing Activities (105,800) 19,600 (44,500) Effect Of Exchange Rate Changes - - - Change In Cash and Cash Equivalents $42,300 ($53,100) $52,000
  20. 20. A majority of the acute care facilities run by Triad Hospitals, Inc are located in the southern part of the United States.
  21. 21. SPECIALTIES Anesthesiology Neurosurgery Bariatric Surgery Obstetrics & Gynecology Cardiology Occupational Therapy Cardiothoracic Surgery Oncology and Subspecialties Colon-rectal Surgery Ophthalmology Dermatology Orthopedics Ear, Nose & Throat Pain Management Emergency Medicine Pathology Endocrinology Pediatrics Family Practice Pediatric Cardiology Gastroenterology Pediatric Surgery General Surgery Physical Medicine & Rehabilitation Geriatrics Plastic Surgery Hospitalist Psychiatry Infectious Disease Pulmonary Internal Medicine Radiology Nephrology Rheumatology Neurology Urology Wound Care
  22. 22. The chart below shows stock prices and the correlation with the market over the last year. Date StkX MeanX (X-M) (X-M)² MarketY Mean Y (Y-Mean) (Y-Mn)² ER X ExRetX ER Y Ex Y Nov05 41.13 40.53 0.600 0.360 1220.14 1166.226 53.914 2906.757 0.00 -4.300 0.00 -4.300 0 0 Oct05 41.13 40.53 0.600 0.360 1207.01 1166.226 40.784 1663.363 0.00 -4.300 -.011 -4.311 0 Sep-05 45.27 40.53 4.740 22.468 1228.81 1166.226 62.584 3916.801 0.10 -4.199 0.01 -4.282 1 8 Aug05 48.14 40.53 7.610 57.912 1220.33 1166.226 54.104 2927.280 0.06 -4.237 -.007 -4.307 3 Jul-05 49.67 40.53 9.140 83.540 1234.18 1166.226 67.954 4617.793 0.03 -4.268 0.01 -4.289 2 1 Jun-05 54.64 40.53 14.110 199.092 1191.33 1166.226 25.104 630.228 0.10 -4.200 -.035 -4.335 0 May05 50.72 40.53 10.190 103.836 1191.5 1166.226 25.274 638.793 -.072 -4.372 0.00 -4.300 0 Apr-05 51.25 40.53 10.720 114.918 1156.85 1166.226 -9.376 87.903 0.01 -4.290 -.029 -4.329 0 Mar-05 50.1 40.53 9.570 91.585 1180.59 1166.226 14.364 206.334 -.022 -4.322 0.02 -4.279 1 Feb-05 43.67 40.53 3.140 9.860 1203.6 1166.226 37.374 1396.842 -.128 -4.428 0.01 -4.281 9 Jan-05 40.69 40.53 0.160 0.026 1181.27 1166.226 15.044 226.332 -.068 -4.368 -.019 -4.319 Dec-04 37.21 40.53 -3.320 11.022 1211.92 1166.226 45.694 2087.973 -.086 -4.386 0.02 -4.274 6 Nov04 36.69 40.53 -3.840 14.746 1173.82 1166.226 7.594 57.674 -.014 -4.314 -.031 -4.331 Oct-04 33.03 40.53 -7.500 56.250 1130.2 1166.226 -36.026 1297.848 -.100 -4.400 -.037 -4.337 Sep-04 34.44 40.53 -6.090 37.088 1114.58 1166.226 -51.646 2667.273 0.04 -4.257 -.014 -4.314 3 Aug04 31.79 40.53 -8.740 76.388 1104.24 1166.226 -61.986 3842.221 -.077 -4.377 -.009 -4.309 Jul-04 34.06 40.53 -6.470 41.861 1101.72 1166.226 -64.506 4160.979 0.07 -4.229 -.002 -4.302 1 Jun-04 37.23 40.53 -3.300 10.890 1140.84 1166.226 -25.386 644.431 0.09 -4.207 0.03 -4.264 3 6 May04 35.36 40.53 -5.170 26.729 1120.68 1166.226 -45.546 2074.406 -.050 -4.350 -.018 -4.318 Apr-04 34.01 40.53 -6.520 42.510 1107.3 1166.226 -58.926 3472.232 -.038 -4.338 -.012 -4.312 Mar-04 30.82 40.53 -9.710 94.284 1126.21 1166.226 -40.016 1601.252 -.094 -4.394 0.01 -4.283 7 Feb-04 35.29 40.53 -5.240 27.458 1144.94 1166.226 -21.286 453.079 0.14 -4.155 0.01 -4.283 5 7 Jan-04 35.85 40.53 -4.680 21.902 1131.13 1166.226 -35.096 1231.705 0.01 -4.284 -.012 -4.312 6 932.1 1145.08 26823.19 42809.50 -.003 Mean -.003 Rf=4.3 9 4 2 49.786 1861.283 0.07 STD 0.02 5 1 Mean 40.53 STDEV 7.056 1166.226 STDEV 43.143 0.00 VAR 0.00 6 0 Correlation 0.01502 B=0.665
  23. 23. 6 year stock prices of Triad vs. S&P Date Stock ER Excess Return S&P Returns ExcessReturns 1-Nov-05 41.18 -4.3 1222.81 -4.3 3-Oct-05 41.13 -0.001214182 -4.301214182 1207.01 -0.012921059 -4.312921059 1-Sep-05 45.27 0.100656455 -4.199343545 1228.81 0.018061159 -4.281938841 1-Aug-05 48.14 0.063397393 -4.236602607 1220.33 -0.006900986 -4.306900986 1-Jul-05 49.67 0.031782302 -4.268217698 1234.18 0.011349389 -4.288650611 1-Jun-05 54.64 0.100060399 -4.199939601 1191.33 -0.034719409 -4.334719409 2-May-05 50.72 -0.071742313 -4.371742313 1191.5 0.000142698 -4.299857302 1-Apr-05 51.25 0.010449527 -4.289550473 1156.85 -0.02908099 -4.32908099 1-Mar-05 50.1 -0.022439024 -4.322439024 1180.59 0.020521243 -4.279478757 1-Feb-05 43.67 -0.128343313 -4.428343313 1203.6 0.019490255 -4.280509745 3-Jan-05 40.69 -0.068239066 -4.368239066 1181.27 -0.018552675 -4.318552675 1-Dec-04 37.21 -0.085524699 -4.385524699 1211.92 0.025946651 -4.274053349 1-Nov-04 36.69 -0.013974738 -4.313974738 1173.82 -0.031437719 -4.331437719 1-Oct-04 33.03 -0.099754702 -4.399754702 1130.2 -0.037160723 -4.337160723 1-Sep-04 34.44 0.042688465 -4.257311535 1114.58 -0.013820563 -4.313820563 2-Aug-04 31.79 -0.076945412 -4.376945412 1104.24 -0.009277037 -4.309277037 1-Jul-04 34.06 0.071406103 -4.228593897 1101.72 -0.002282113 -4.302282113 1-Jun-04 37.23 0.093071051 -4.206928949 1140.84 0.035508115 -4.264491885 3-May-04 35.36 -0.050228311 -4.350228311 1120.68 -0.01767119 -4.31767119 1-Apr-04 34.01 -0.038178733 -4.338178733 1107.3 -0.01193918 -4.31193918 1-Mar-04 30.82 -0.093795942 -4.393795942 1126.21 0.017077576 -4.282922424 2-Feb-04 35.29 0.145035691 -4.154964309 1144.94 0.016631001 -4.283368999 2-Jan-04 35.85 0.015868518 -4.284131482 1131.13 -0.012061767 -4.312061767 1-Dec-03 33.27 -0.071966527 -4.371966527 1111.92 -0.016983017 -4.316983017 3-Nov-03 34.6 0.039975954 -4.260024046 1058.2 -0.048312828 -4.348312828 1-Oct-03 30.73 -0.111849711 -4.411849711 1050.71 -0.007078057 -4.307078057 2-Sep-03 30.28 -0.014643671 -4.314643671 995.97 -0.052098105 -4.352098105 1-Aug-03 32.4 0.07001321 -4.22998679 1008.01 0.012088718 -4.287911282 1-Jul-03 30.19 -0.068209877 -4.368209877 990.31 -0.01755935 -4.31755935 2-Jun-03 24.82 -0.177873468 -4.477873468 974.5 -0.015964698 -4.315964698 1-May-03 25.87 0.042304593 -4.257695407 963.59 -0.011195485 -4.311195485 1-Apr-03 22.01 -0.149207576 -4.449207576 916.92 -0.048433462 -4.348433462 3-Mar-03 26.9 0.22217174 -4.07782826 848.18 -0.074968372 -4.374968372 3-Feb-03 25.99 -0.033828996 -4.333828996 841.15 -0.008288335 -4.308288335 2-Jan-03 27.8 0.06964217 -4.23035783 855.7 0.017297747 -4.282702253 2-Dec-02 29.83 0.073021583 -4.226978417 879.82 0.028187449 -4.271812551 1-Nov-02 30.15 0.010727456 -4.289272544 936.31 0.064206315 -4.235793685 1-Oct-02 36.5 0.210613599 -4.089386401 885.76 -0.053988529 -4.353988529 3-Sep-02 37.95 0.039726027 -4.260273973 815.28 -0.079570087 -4.379570087 1-Aug-02 36.51 -0.037944664 -4.337944664 916.07 0.123626239 -4.176373761 1-Jul-02 39.98 0.095042454 -4.204957546 911.62 -0.004857707 -4.304857707 3-Jun-02 42.38 0.060030015 -4.239969985 989.82 0.085781356 -4.214218644 1-May-02 45.19 0.066304861 -4.233695139 1067.14 0.078115213 -4.221884787 1-Apr-02 42 -0.070590839 -4.370590839 1076.92 0.009164683 -4.290835317 1-Mar-02 34.38 -0.181428571 -4.481428571 1147.39 0.065436616 -4.234563384
  24. 24. 4-Feb-02 30.6 -0.109947644 -4.409947644 1106.73 -0.035436948 -4.335436948 2-Jan-02 31.7 0.035947712 -4.264052288 1130.2 0.021206618 -4.278793382 3-Dec-01 29.35 -0.074132492 -4.374132492 1148.08 0.015820209 -4.284179791 1-Nov-01 27.75 -0.05451448 -4.35451448 1139.45 -0.007516898 -4.307516898 1-Oct-01 26.9 -0.030630631 -4.330630631 1059.78 -0.069919698 -4.369919698 4-Sep-01 35.4 0.31598513 -3.98401487 1040.94 -0.017777275 -4.317777275 1-Aug-01 36.15 0.021186441 -4.278813559 1133.58 0.088996484 -4.211003516 2-Jul-01 33.92 -0.061687414 -4.361687414 1211.23 0.068499797 -4.231500203 1-Jun-01 29.47 -0.131191038 -4.431191038 1224.38 0.010856732 -4.289143268 1-May-01 24.7 -0.161859518 -4.461859518 1255.82 0.025678302 -4.274321698 2-Apr-01 31.42 0.272064777 -4.027935223 1249.46 -0.00506442 -4.30506442 1-Mar-01 28.25 -0.100891152 -4.400891152 1160.33 -0.071334817 -4.371334817 1-Feb-01 32.69 0.157168142 -4.142831858 1239.94 0.068609792 -4.231390208 2-Jan-01 28.38 -0.131844601 -4.431844601 1366.01 0.101674275 -4.198325725 1-Dec-00 32.56 0.147286822 -4.152713178 1320.28 -0.033477061 -4.333477061 1-Nov-00 29.88 -0.082309582 -4.382309582 1314.95 -0.004037022 -4.304037022 2-Oct-00 27.75 -0.071285141 -4.371285141 1429.4 0.08703753 -4.21296247 1-Sep-00 29.38 0.058738739 -4.241261261 1436.51 0.004974115 -4.295025885 1-Aug-00 28.88 -0.01701838 -4.31701838 1517.68 0.056505002 -4.243494998 3-Jul-00 25.12 -0.130193906 -4.430193906 1430.83 -0.057225502 -4.357225502 1-Jun-00 24.19 -0.037022293 -4.337022293 1454.6 0.016612735 -4.283387265 1-May-00 21.44 -0.11368334 -4.41368334 1420.6 -0.023374123 -4.323374123 3-Apr-00 17.19 -0.198227612 -4.498227612 1452.43 0.022406026 -4.277593974 1-Mar-00 16.75 -0.025596277 -4.325596277 1498.58 0.031774337 -4.268225663 1-Feb-00 16 -0.044776119 -4.344776119 1366.42 -0.088190153 -4.388190153 3-Jan-00 17.12 0.07 -4.23 1394.46 0.020520777 -4.279479223 1-Dec-99 15.13 -0.116238318 -4.416238318 1469.25 0.053633665 -4.246366335 12- Nov-99 12.38 -0.181758096 -4.481758096 1388.91 -0.05468096 -4.35468096 B= -0.0227 R^2=0.003
  25. 25. References http://fiannce.yahoo.com www.triadhospitals.com www.Reuters.com http://news.yahoo.com www.morningstar.com

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