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Why Now is the Time to Buy Tenet Stock After a 15% Drop
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U.S. healthcare services company Tenet Healthcare Corporation (THC - Free Report) declined 15.3% in the past month, underperforming the hospital industry and the S&P 500 Index. In comparison, its peers, HCA Healthcare, Inc. (HCA - Free Report) and Select Medical Holdings Corporation (SEM - Free Report) , have slipped 10.8% and 44.7%, respectively, during this time.
The hospital industry is facing some challenges. Analysts expect that the new administration’s focus on cutting government spending and implementing changes could impact hospital profits in the short term. Additionally, concerns about reduced hospital funding and the expiration of insurance subsidies add to the uncertainty.
THC One-Month Stock Price Performance Comparison
Image Source: Zacks Investment Research
Having said that, Tenet Healthcare’s robust fundamentals and growth prospects can’t be ignored. For long-term investors, last month’s pullback might be an opportune moment to buy THC shares. Currently priced at $141.27, the stock is 17.5% below its 52-week high, leaving ample room for growth.
Reasons Why We Remain Bullish on THC Stock
Strong Earnings Estimates: The Zacks Consensus Estimate for THC’s 2024 and 2025 EPS implies a 63% and 1.8% uptick on a year-over-year basis, respectively. Encouragingly, the company has witnessed two northbound earnings estimate revisions for the current and the next year. Similarly, the consensus mark for 2024 and 2025 revenues suggests a 1.1% and 2.8% increase, respectively. It beat earnings estimates in each of the past four quarters, with an average surprise of 59.9%.
Tenet Healthcare Corporation Stock Price and EPS Surprise
The company’s adjusted EBITDA for 2024 is now estimated to be within the range of $3.9-$4 billion, up from the earlier view of $3.825-$3.975 billion.Adjusted EBITDA margin is expected to be in the 18.9-19.2% range. Also, adjusted net income is now projected to be between $1.09 billion and $1.15 billion, up from the earlier guidance of $1.02-$1.09 billion.
Improving Financial Strength: Tenet Healthcare exited the third quarter with cash and cash equivalents of $4.1 billion, which increased more than three-fold from the 2023-end figure. Long-term debt, net of the current portion, amounted to $12.8 billion, down 14.2% from the figure as of Dec. 31, 2023. The current portion of long-term debt totaled at an easily manageable $95 million. Also, the free cash flow of $829 million more than doubled year over year. It expects free cash flow to be between $975 million and $1.23 billion for the full year.
Improving Business: Tenet Healthcare's transformative efforts focus on building a more predictable, capital-efficient business model. This approach aims to boost margins, increase free cash flow and establish a resilient business mix capable of thriving in any political or regulatory environment, reducing risks for investors.
Investments in AI-enabled technologies are enhancing clinical and administrative workflows. These innovations are expected to lower costs, shorten patient wait times and improve overall patient experiences. Last month, Tenet Healthcarepartnered with Commure to implement its AI-driven platform, Commure Scribe, across its employed physician network, Tenet Physician Resources.
With an aging population and rising disease prevalence, long-term demand for hospital services remains strong. Tenet Healthcare is well-positioned to capitalize on this trend through strategic acquisitions and new facility developments. Additionally, its focus on the Ambulatory Surgical Centers (ASC) business serves as a significant growth driver, helping it capture more market share in a fragmented market.
Compelling Stock Valuation: From a valuation perspective, Tenet Healthcare is still trading cheaper than the industry. Going by its price/earnings ratio, the company is trading at a forward earnings multiple of 12.22X, a bit lower than the industry average of 12.93X. The company has a Value Score of A.
Image Source: Zacks Investment Research
This cheaper valuation, combined with strong earnings growth and robust free cash flow, makes THC an appealing pick for value investors. Tenet Healthcare has a Value Score of A.
Final Thoughts
While the market’s reaction to the political environment is understandable, it may be overly cautious. Tenet Healthcare’s improving financial position, strategic business mix, focus on ASC assets, and growing demand for its services position it well to navigate these challenges.
Upward revisions in earnings estimates further point to a promising outlook. These strengths make THC an attractive choice for investors seeking a solid long-term investment in the healthcare sector. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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Why Now is the Time to Buy Tenet Stock After a 15% Drop
U.S. healthcare services company Tenet Healthcare Corporation (THC - Free Report) declined 15.3% in the past month, underperforming the hospital industry and the S&P 500 Index. In comparison, its peers, HCA Healthcare, Inc. (HCA - Free Report) and Select Medical Holdings Corporation (SEM - Free Report) , have slipped 10.8% and 44.7%, respectively, during this time.
The hospital industry is facing some challenges. Analysts expect that the new administration’s focus on cutting government spending and implementing changes could impact hospital profits in the short term. Additionally, concerns about reduced hospital funding and the expiration of insurance subsidies add to the uncertainty.
THC One-Month Stock Price Performance Comparison
Having said that, Tenet Healthcare’s robust fundamentals and growth prospects can’t be ignored. For long-term investors, last month’s pullback might be an opportune moment to buy THC shares. Currently priced at $141.27, the stock is 17.5% below its 52-week high, leaving ample room for growth.
Reasons Why We Remain Bullish on THC Stock
Strong Earnings Estimates: The Zacks Consensus Estimate for THC’s 2024 and 2025 EPS implies a 63% and 1.8% uptick on a year-over-year basis, respectively. Encouragingly, the company has witnessed two northbound earnings estimate revisions for the current and the next year. Similarly, the consensus mark for 2024 and 2025 revenues suggests a 1.1% and 2.8% increase, respectively. It beat earnings estimates in each of the past four quarters, with an average surprise of 59.9%.
Tenet Healthcare Corporation Stock Price and EPS Surprise
Tenet Healthcare Corporation price-eps-surprise | Tenet Healthcare Corporation Quote
The company’s adjusted EBITDA for 2024 is now estimated to be within the range of $3.9-$4 billion, up from the earlier view of $3.825-$3.975 billion.Adjusted EBITDA margin is expected to be in the 18.9-19.2% range. Also, adjusted net income is now projected to be between $1.09 billion and $1.15 billion, up from the earlier guidance of $1.02-$1.09 billion.
Improving Financial Strength: Tenet Healthcare exited the third quarter with cash and cash equivalents of $4.1 billion, which increased more than three-fold from the 2023-end figure. Long-term debt, net of the current portion, amounted to $12.8 billion, down 14.2% from the figure as of Dec. 31, 2023. The current portion of long-term debt totaled at an easily manageable $95 million. Also, the free cash flow of $829 million more than doubled year over year. It expects free cash flow to be between $975 million and $1.23 billion for the full year.
Improving Business: Tenet Healthcare's transformative efforts focus on building a more predictable, capital-efficient business model. This approach aims to boost margins, increase free cash flow and establish a resilient business mix capable of thriving in any political or regulatory environment, reducing risks for investors.
Investments in AI-enabled technologies are enhancing clinical and administrative workflows. These innovations are expected to lower costs, shorten patient wait times and improve overall patient experiences. Last month, Tenet Healthcarepartnered with Commure to implement its AI-driven platform, Commure Scribe, across its employed physician network, Tenet Physician Resources.
With an aging population and rising disease prevalence, long-term demand for hospital services remains strong. Tenet Healthcare is well-positioned to capitalize on this trend through strategic acquisitions and new facility developments. Additionally, its focus on the Ambulatory Surgical Centers (ASC) business serves as a significant growth driver, helping it capture more market share in a fragmented market.
Compelling Stock Valuation: From a valuation perspective, Tenet Healthcare is still trading cheaper than the industry. Going by its price/earnings ratio, the company is trading at a forward earnings multiple of 12.22X, a bit lower than the industry average of 12.93X. The company has a Value Score of A.
This cheaper valuation, combined with strong earnings growth and robust free cash flow, makes THC an appealing pick for value investors. Tenet Healthcare has a Value Score of A.
Final Thoughts
While the market’s reaction to the political environment is understandable, it may be overly cautious. Tenet Healthcare’s improving financial position, strategic business mix, focus on ASC assets, and growing demand for its services position it well to navigate these challenges.
Upward revisions in earnings estimates further point to a promising outlook. These strengths make THC an attractive choice for investors seeking a solid long-term investment in the healthcare sector. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.