Triad Hospitals Inc. (NYSE:TRI) found itself under pressure yesterday by TPG-Axon Capital Management, who disclosed a 6.5% stake in the company and made several demands yesterday in a 13D/A filing with the SEC.

In the filing, Axon said:

"The Reporting Persons believe that the Common Stock is significantly undervalued and represents an attractive investment opportunity. The Reporting Persons believe that the Issuer has valuable and well-positioned assets, whose value is  significantly greater than the current market capitalization  of the company. However, the valuation of the company, and of those assets, is being depressed and diluted by poor capital discipline. The Reporting Persons believe that in order to avoid further  dilution of shareholder value, the Issuer must substantially improve its capital discipline and focus on maximizing return on capital.

Since the merger with Quorum Health Group in 2001, the Issuer has spent all available funds on expansion,  resulting in negative free cash flow and dilution to shareholders. The Issuer has been unable to analytically demonstrate that this acquisition strategy is in the interest of shareholders, and does not appear to have sufficient focus on calculating  return on investment, and ensuring its adequacy. As a result, growth of cash flow, EBITDA and net income, MEASURED ON A PER SHARE BASIS, have significantly lagged behind comparable companies.

The Reporting Persons believe the Issuer should take actions to increase shareholder value, including, but not limited to, the following:

1. significantly reduce capital expenditures and acquisitions;
2. implement rigorous analytical standards for capital expenditures;
3. increase its focus on margins and efficiency of existing assets; and
4. significantly increase stock buybacks, in place of risky and unproven
   gambles on acquisitions and new facility construction." (Read More)
   

The company is trading below enterprise value with strong cash flow and a PEG of right around 1 - well below the industry average. Investors applauded these moves as the stock rose today almost 2% in morning trading. This is definitely a stock to keep an eye on as management decides whether or not to implement these changes.

Related Companies
Community Health Systems (CYH)
Tenet Healthcare Corporation (THC)
HCA, Inc. (HCA)