We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Should You Buy Tenet Healthcare Stock Now at Cheaper Valuation?
Read MoreHide Full Article
U.S. healthcare services company Tenet Healthcare Corporation (THC - Free Report) is trading comparatively cheap at the moment from a valuation standpoint. Its forward earnings multiple of 11.10X is lower than its five-year median of 11.96X and the industry average of 13.13X. The stock also looks attractively valued relative to other medical facility operators like HCA Healthcare, Inc. (HCA - Free Report) and Encompass Health Corporation (EHC - Free Report) , with forward 12-month P/E of 13.70X and 21.52X, respectively. Tenet Healthcare has a Value Score of A.
Image Source: Zacks Investment Research
Tenet Healthcare’s cash flow situation is also encouraging. In the trailing 12-month period, THC’s free cash flow grew 47.4% to $2.39 billion. Going by its price-to-free cash flow (P/FCF), a reliable indicator of a company’s financial health, THC is trading at 5.10X, below the industry’s average of 9.73X.
With the stock trading at a discount, we examine Tenet Healthcare’s growth drivers and challenges to determine if it presents a strong investment opportunity for investors at this time.
What’s Going Right for THC?
Tenet Healthcare’s deleveraging efforts are paying off. It 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.
Thanks to its de-leveraging efforts, its net debt to EBITDA is brought down to 2.25X, well below its five-year median of 4.72X and the industry average of 3.23X. For 2024, its adjusted EBITDA is estimated to be within the range of $3.9-$4 billion, higher than the prior projection of $3.825-$3.975 billion. It expects adjusted EBITDA margin to be in the 18.9-19.2% range. THC is likely to continue divesting its non-core and less profitable units to further repay debt and free up capital.
Tenet Healthcare is sharpening its focus on ambulatory surgery centers (ASCs) to capitalize on the increasing demand for outpatient services. In partnership with United Surgical Partners International (USPI), the company is expanding its network, optimizing operations, and targeting improved profit margins. By the end of the third quarter, USPIheld interests in 520 ASCs and 24 surgical hospitals across 37 states.
The company is also investing in AI-powered technologies to streamline both clinical and administrative processes, which should help lower costs, reduce patient wait times and boost patient satisfaction.
THC’s Earnings Estimates & Surprise History
The Zacks Consensus Estimate for 2024 adjusted earnings for THC is currently pegged at $11.37 per share, indicating a 62.9% year-over-year surge. It has witnessed three upward estimate revisions in the past 60 days against none in the opposite direction. The consensus estimate for 2024 and 2025 revenues suggests 1% and 2.5% year-over-year growth, respectively.
It beat earnings estimates in each of the past four quarters, with an average surprise of 59.9%.
Tenet Healthcare Corporation Price and EPS Surprise
Tenet Healthcare’s stock, though trading at a discount, may not be the best buy for new investors right now. While existing shareholders can benefit from the stock’s lower valuation, deleveraging efforts, growth in ASCs and favorable estimates, new buyers should exercise caution.
The broader hospital industry faces several challenges, including the new administration's focus on cutting government spending and potential changes that could affect hospital profits in the near term. Additionally, concerns about reduced funding for hospitals and the expiration of insurance subsidies add further uncertainty to the sector.
Despite Tenet Healthcare’s stock surging over 70% in the past year — outperforming both the industry average of 9.1% and the S&P 500’s 26.2% increase — much of the positive outlook seems to be priced in. As a result, there may be limited short-term upside, and prospective investors might want to wait for a more favorable entry point.
THC's supply costs increased nearly 10% in 2023 and 2.2% in the first three quarters of 2024. Other net operating costs also saw significant growth, nearly 13% in 2023 and 2.8% through the third quarter of 2024. As occupancy levels rise and resource utilization grows, operating costs are expected to continue increasing.
Additionally, Tenet’s Return on Invested Capital stands at 8.27%, well below the industry average of 12.89%. This suggests that the company is struggling to generate competitive returns on its invested capital compared to its peers.
Image: Bigstock
Should You Buy Tenet Healthcare Stock Now at Cheaper Valuation?
U.S. healthcare services company Tenet Healthcare Corporation (THC - Free Report) is trading comparatively cheap at the moment from a valuation standpoint. Its forward earnings multiple of 11.10X is lower than its five-year median of 11.96X and the industry average of 13.13X. The stock also looks attractively valued relative to other medical facility operators like HCA Healthcare, Inc. (HCA - Free Report) and Encompass Health Corporation (EHC - Free Report) , with forward 12-month P/E of 13.70X and 21.52X, respectively. Tenet Healthcare has a Value Score of A.
Tenet Healthcare’s cash flow situation is also encouraging. In the trailing 12-month period, THC’s free cash flow grew 47.4% to $2.39 billion. Going by its price-to-free cash flow (P/FCF), a reliable indicator of a company’s financial health, THC is trading at 5.10X, below the industry’s average of 9.73X.
With the stock trading at a discount, we examine Tenet Healthcare’s growth drivers and challenges to determine if it presents a strong investment opportunity for investors at this time.
What’s Going Right for THC?
Tenet Healthcare’s deleveraging efforts are paying off. It 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.
Thanks to its de-leveraging efforts, its net debt to EBITDA is brought down to 2.25X, well below its five-year median of 4.72X and the industry average of 3.23X. For 2024, its adjusted EBITDA is estimated to be within the range of $3.9-$4 billion, higher than the prior projection of $3.825-$3.975 billion. It expects adjusted EBITDA margin to be in the 18.9-19.2% range. THC is likely to continue divesting its non-core and less profitable units to further repay debt and free up capital.
Tenet Healthcare is sharpening its focus on ambulatory surgery centers (ASCs) to capitalize on the increasing demand for outpatient services. In partnership with United Surgical Partners International (USPI), the company is expanding its network, optimizing operations, and targeting improved profit margins. By the end of the third quarter, USPIheld interests in 520 ASCs and 24 surgical hospitals across 37 states.
The company is also investing in AI-powered technologies to streamline both clinical and administrative processes, which should help lower costs, reduce patient wait times and boost patient satisfaction.
THC’s Earnings Estimates & Surprise History
The Zacks Consensus Estimate for 2024 adjusted earnings for THC is currently pegged at $11.37 per share, indicating a 62.9% year-over-year surge. It has witnessed three upward estimate revisions in the past 60 days against none in the opposite direction. The consensus estimate for 2024 and 2025 revenues suggests 1% and 2.5% year-over-year growth, respectively.
It beat earnings estimates in each of the past four quarters, with an average surprise of 59.9%.
Tenet Healthcare Corporation Price and EPS Surprise
Tenet Healthcare Corporation price-eps-surprise | Tenet Healthcare Corporation Quote
THC Stock: A Cautious Hold for New Investors
Tenet Healthcare’s stock, though trading at a discount, may not be the best buy for new investors right now. While existing shareholders can benefit from the stock’s lower valuation, deleveraging efforts, growth in ASCs and favorable estimates, new buyers should exercise caution.
The broader hospital industry faces several challenges, including the new administration's focus on cutting government spending and potential changes that could affect hospital profits in the near term. Additionally, concerns about reduced funding for hospitals and the expiration of insurance subsidies add further uncertainty to the sector.
Despite Tenet Healthcare’s stock surging over 70% in the past year — outperforming both the industry average of 9.1% and the S&P 500’s 26.2% increase — much of the positive outlook seems to be priced in. As a result, there may be limited short-term upside, and prospective investors might want to wait for a more favorable entry point.
Price Performance - THC, EHC, HCA, Hospital Industry & S&P 500
THC's supply costs increased nearly 10% in 2023 and 2.2% in the first three quarters of 2024. Other net operating costs also saw significant growth, nearly 13% in 2023 and 2.8% through the third quarter of 2024. As occupancy levels rise and resource utilization grows, operating costs are expected to continue increasing.
Additionally, Tenet’s Return on Invested Capital stands at 8.27%, well below the industry average of 12.89%. This suggests that the company is struggling to generate competitive returns on its invested capital compared to its peers.
With Tenet Healthcare currently carrying a Zacks Rank #3 (Hold), new investors should consider staying on the sidelines until a more attractive entry point emerges. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.