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Can Tenet Healthcare's $910M Divestment in Alabama Cure its Debt Woes?
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Tenet Healthcare Corporation (THC - Free Report) recently completed the divestment of its 70% majority ownership in Brookwood Baptist Health to Orlando Health, marking a pivotal move in its strategic realignment. The sale, which closed within the expected timeframe, includes five hospitals and other related operations in Birmingham, AL.
With this transaction, earlier expected to be valued at approximately $910 million in cash, Tenet streamlines its portfolio and focuses on high-growth segments, such as ambulatory care services, through its USPI division. The sale was expected to result in after-tax proceeds of around $790 million. The company uses divestments for strategic investments and debt reductions.
Overall, this move reflects Tenet’s intention to sharpen its focus on more lucrative and scalable ventures, minimizing exposure to less profitable operations. With an improving balance sheet and a leaner portfolio, Tenet is poised to capture more value from its core operations, making this divestment a strategically sound decision that could lead to long-term growth and profitability for investors.
This was necessary, considering its return on invested capital of 7.88X lags behind the industry average of 12.64X, indicating room for optimization. Also, more such divestments can be expected in the coming days, which will likely fuel the company’s de-leveraging initiatives. Its total debt to EBITDA of 3.49X is marginally higher than the industry’s 3.47X.
The completion of this deal doesn’t mean the end of Tenet’s presence in the Birmingham healthcare market. Its subsidiary, Conifer Health Solutions, had secured a 10-year revenue cycle management contract with the sold facilities, ensuring a steady stream of revenue.
THC’s Price Performance
Shares of THC have surged 115.5% in the year-to-date period, outperforming the 48.6% rise of the industry. This rally has boosted Tenet Healthcare’s market capitalization by almost $8 billion. (Read More: Tenet Adds $8B in Market Cap in 2024: Why it's Still a Healthy Buy)
Image Source: Zacks Investment Research
Zacks Rank and Other Key Picks
Tenet currently sports a Zacks Rank #1 (Strong Buy).
The Zacks Consensus Estimate for Universal Health Services’ 2024 bottom line suggests 51% year-over-year growth. UHS witnessed two upward estimate revisions over the past 60 days against no movement in the opposite direction. It beat earnings estimates in each of the last four quarters, with the average surprise being 14.6%.
The Zacks Consensus Estimate for HCA Healthcare’s 2024 bottom line is pegged at $22.46 per share, which indicates 18.2% growth from a year ago. During the past 30 days, HCA witnessed three upward estimate revisions against none in the opposite direction. It beat earnings estimates in three of the last four quarters and missed once, with the average surprise being 8.2%.
The Zacks Consensus Estimate for Acadia Healthcare’s current-year earnings implies a 2% improvement from the year-ago reported figure. ACHC beat earnings estimates in each of the last four quarters, with an average surprise of 4.5%. The consensus mark for its current-year revenues is pegged at $3.2 billion, which indicates a 9.5% year-over-year increase.
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Can Tenet Healthcare's $910M Divestment in Alabama Cure its Debt Woes?
Tenet Healthcare Corporation (THC - Free Report) recently completed the divestment of its 70% majority ownership in Brookwood Baptist Health to Orlando Health, marking a pivotal move in its strategic realignment. The sale, which closed within the expected timeframe, includes five hospitals and other related operations in Birmingham, AL.
With this transaction, earlier expected to be valued at approximately $910 million in cash, Tenet streamlines its portfolio and focuses on high-growth segments, such as ambulatory care services, through its USPI division. The sale was expected to result in after-tax proceeds of around $790 million. The company uses divestments for strategic investments and debt reductions.
Overall, this move reflects Tenet’s intention to sharpen its focus on more lucrative and scalable ventures, minimizing exposure to less profitable operations. With an improving balance sheet and a leaner portfolio, Tenet is poised to capture more value from its core operations, making this divestment a strategically sound decision that could lead to long-term growth and profitability for investors.
This was necessary, considering its return on invested capital of 7.88X lags behind the industry average of 12.64X, indicating room for optimization. Also, more such divestments can be expected in the coming days, which will likely fuel the company’s de-leveraging initiatives. Its total debt to EBITDA of 3.49X is marginally higher than the industry’s 3.47X.
The completion of this deal doesn’t mean the end of Tenet’s presence in the Birmingham healthcare market. Its subsidiary, Conifer Health Solutions, had secured a 10-year revenue cycle management contract with the sold facilities, ensuring a steady stream of revenue.
THC’s Price Performance
Shares of THC have surged 115.5% in the year-to-date period, outperforming the 48.6% rise of the industry. This rally has boosted Tenet Healthcare’s market capitalization by almost $8 billion. (Read More: Tenet Adds $8B in Market Cap in 2024: Why it's Still a Healthy Buy)
Image Source: Zacks Investment Research
Zacks Rank and Other Key Picks
Tenet currently sports a Zacks Rank #1 (Strong Buy).
Investors can look at some other top-ranked stocks in the broader Medical space, like Universal Health Services, Inc. (UHS - Free Report) , HCA Healthcare, Inc. (HCA - Free Report) and Acadia Healthcare Company, Inc. (ACHC - Free Report) , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Universal Health Services’ 2024 bottom line suggests 51% year-over-year growth. UHS witnessed two upward estimate revisions over the past 60 days against no movement in the opposite direction. It beat earnings estimates in each of the last four quarters, with the average surprise being 14.6%.
The Zacks Consensus Estimate for HCA Healthcare’s 2024 bottom line is pegged at $22.46 per share, which indicates 18.2% growth from a year ago. During the past 30 days, HCA witnessed three upward estimate revisions against none in the opposite direction. It beat earnings estimates in three of the last four quarters and missed once, with the average surprise being 8.2%.
The Zacks Consensus Estimate for Acadia Healthcare’s current-year earnings implies a 2% improvement from the year-ago reported figure. ACHC beat earnings estimates in each of the last four quarters, with an average surprise of 4.5%. The consensus mark for its current-year revenues is pegged at $3.2 billion, which indicates a 9.5% year-over-year increase.