For-profit hospital operator Tenet Healthcare Corporation THC has seen impressive gains in 2024, with shares skyrocketing 118.2%, far outpacing the industry’s 50.5% growth and the S&P 500’s 19.9% rise. It also outpaced its peers like Universal Health Services, Inc. UHS and HCA Healthcare, Inc. HCA. This rally has boosted Tenet Healthcare’s market capitalization by $8.13 billion in 2024 alone.
With this sharp rally, the question for investors is whether to ride the momentum for more potential upside or lock in profits. A deeper look at THC's future prospects and fundamentals can provide insight into the best move forward.
THC’s YTD Price Performance Comparison
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Understanding THC’s Bright Prospects
Tenet Healthcare is intensifying its focus on ambulatory surgery centers (ASCs) to capitalize on the growing demand for outpatient services. Through its collaboration with United Surgical Partners International, the company is expanding its network, optimizing operations and aiming to boost profit margins. By the end of the second quarter, THC held interests in 520 ambulatory surgery centers and 24 surgical hospitals.
These strategic initiatives are expected to drive margin growth and increase free cash flow, creating a more diversified business model resilient to political and regulatory shifts and reducing risks for investors. The company is also investing in AI-powered technology to streamline both clinical and administrative processes, which should lower costs, minimize patient wait times and improve overall patient satisfaction.
A stabilizing labor market and effective staffing strategies have enabled the company to expand its workforce, restoring services previously limited by pandemic-related disruptions and enhancing its capacity to accommodate growing healthcare needs.
Additionally, with an aging population and the rising incidence of chronic conditions, demand for hospital services is set to grow in the long term. Tenet plans to capitalize on this trend through strategic acquisitions and new facility developments.
Estimate Revision Favoring THC Stock
Reflecting the positive sentiment around Tenet, the Zacks Consensus Estimate for earnings per share has seen upward revisions. The consensus estimate for 2024 adjusted earnings for THC is currently pegged at $10.72 per share, indicating a 53.6% year-over-year surge. The consensus mark for 2025 suggests a further 2.4% jump. It beat earnings estimates in each of the past four quarters, with an average surprise of 58.5%. The consensus estimate for 2024 and 2025 revenues suggests 1.4% and 3.8% year-over-year growth, respectively.
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THC’s Improving Balance Sheet
Tenet’s long-term debt, net of the current portion, amounted to $12.8 billion at the second-quarter end, down 14.2% from the figure as of Dec. 31, 2023. It exited the quarter with cash and cash equivalents of $2.9 billion, which more than doubled from the figure in 2023 end. Thanks to its de-leveraging efforts, its net debt to EBITDA of 2.71X is now below the five-year median of 4.83X and the industry average of 3.34X.
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THC’s Impressive FCF Generation
Over the past four quarters, Tenet’s free cash flow (FCF) jumped 118%, 370.2%, 61.7% and 29.2%, respectively, indicating growing operating strength. In the trailing 12-month period, THC’s FCF grew 16.5% to $1.89 billion.
THC Stock Still Trading Cheap
Despite the surge in share price, de-levering its balance sheet and growing FCF, Tenet is trading at a discount compared to the industry average. It presents a compelling investment opportunity with its attractive forward 12-month price-to-earnings ratio of 15.12X, lower than the industry average of 16.44X. The company has a Value Score of A.
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Grab THC Stock for Higher Gains
Currently trading at $164.94, Tenet Healthcare’s stock is nearing its 52-week high of $171.20. While this might seem discouraging at first glance, it actually highlights strong investor confidence and market optimism about this hospital company’s prospects.Despite being close to its peak, THC remains a compelling buy due to its solid fundamentals, appealing valuation and upward trend in earnings estimates.
If Tenet continues to reduce its debt, generate robust FCF and focus on evolving its business mix into a higher-growth ASC-focused business, investors could see significant gains.
THC currently sports a Zacks Rank #1 (Strong Buy) and has a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
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