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Tenet Healthcare (THC) Hits 52 Week High: Will the Rally Stay?

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On Mar 15, shares of Tenet Healthcare Corporation (THC - Free Report) touched a 52-week high of $57.65 before closing the session a tad lower at $54.56.

Over the past year, this hospital company’s stock has rallied 337.7% compared with its industry’s growth of 143.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The performance also looks stellar when compared to the stock movements of other companies like Select Medical Holdings Corporation (SEM - Free Report) , Universal Health Services, Inc. (UHS - Free Report) and MEDNAX, Inc. (MD - Free Report) , which have also soared 133.2%, 73.5% and 178.2%, respectively, in the same time frame.

This upside is likely attributable to the company’s latest contract extension with Evanston, IL-based NorthShore University HealthSystem to continue offering physician revenue cycle services to Northshore. Its arm Conifer Health Solutions unveiled a multi-year contract extension with Evanston.
The extended contract is not restricted to availing of continued services of Conifer only. It also includes the incorporation of Swedish Hospital, which came under the network of NorthShore last January.

Time and again, Conifer extended its services to health systems and physician practices, helping both tide over revenue cycle challenges.

Last month, this unit of Tenet Healthcare expanded its longstanding ties with New Orleans-based LCMC Health in a bid to offer physician AR management a small-balance support and COVID-vaccine scheduling services. Notably, Conifer has been benefiting five LCMC Health hospitals located in the greater New Orleans area by offering eligibility and enrollment services (EES), and patient financial counseling.

Tenet Healthcare has a solid inorganic growth story. The company successfully acquired and formed an alliance with many companies over the years, boosting its scale of business and tapping new markets. It closed the buyout of an ASC in Washington and a new surgical hospital in ASC in the Central Valley of California. The company closed its buyout of a portfolio of 45 ambulatory surgical centers from SurgCenter Development for a value of $1.1 billion.

The company remains focused on divesting its non-core and unprofitable business units to repay its debt and maintain financial liquidity. Its spin-off of its Conifer business into an independent publicly-traded company is expected to close by the end of 2021. The company is likely to reduce its debt burden by using the proceeds from this transaction.

After facing challenges from escalating expenses for quite some time, the company took cost-curbing initiatives. These measures aided in operating expense reduction in 2018, 2019 and 2020, respectively. The company’s cost-management program comprised primarily headcount cuts and the renegotiation of contracts with suppliers and vendors. In response to the COVID-led turmoil, the company also furloughed employees.

Moreover, it planned a reduction in supply, inventory and other purchased services.

What’s Driving This Outperformance?

The company’s enhanced portfolio and solvency position are likely to position it well for long-term growth.

The stock currently has a Zacks Rank #2 (Buy) and a VGM Score of A. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.

Back-tested results showed that stocks with a VGM Score of A or B combined with a Zacks Rank #1 (Strong Buy) or 2 are the best investment options.

The company is poised to benefit from solid segmental contributions as well as a series of divestitures.

The company’s expenses are expected to decline going forward, backed by its efficient cost management.

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