Tenet Healthcare Gains 26.9% in a Year: Is It the Right Time to Invest?

Tenet Healthcare Corporation’s THC shares have surged 26.9% in the past year against the industry’s 2.2% decline. It has also outperformed the broader Zacks Medical sector’s 11% decline and the S&P 500’s 9.3% increase in the said time frame.The company has been benefiting on the back of higher same-hospital admissions, a favorable payer mix and increased Medicaid supplemental revenues. Closing at $133.04 in the last trading session, the stock has a market cap of $12.7 billion.Image Source: Zacks Investment ResearchGrowth Drivers for THCTenet Healthcare is sharpening its focus on ambulatory surgery centers to capitalize on the rising demand for outpatient services. Through its collaboration with United Surgical Partners International (“USPI”), the company is expanding its network, optimizing operations and driving profitability. By the end of the fourth quarter, USPI held ownership stakes in 518 ASCs and 25 surgical hospitals across 37 states.In addition, Tenet Healthcare is investing in AI-driven technologies to enhance both clinical and administrative processes. These advancements aim to lower costs, reduce patient wait times and improve overall satisfaction, reinforcing the company’s commitment to efficiency and high-quality care.Tenet Healthcare’s cash flow position further highlights its financial strength. In the trailing 12 months, the company generated $1.1 billion in free cash flow. Its price-to-free cash flow ratio is 11.43X, significantly lower than the broader medical sector’s average of 21.57X, indicating financial stability and effective capital management.The company’s deleveraging strategy is also showing positive results. Tenet Healthcare ended the fourth quarter with $3 billion in cash and cash equivalents, more than double its year-end 2023 balance. At the same time, long-term debt (net of the current portion) fell 12.1% to $13.1 billion, with just $92 million classified as the current portion, ensuring manageable near-term obligations.As a result of these efforts, Tenet Healthcare’s net debt-to-EBITDA ratio has improved to 2.61X, well below its five-year median of 4.64X and the industry average of 3.29X. For 2025, the company forecasts adjusted EBITDA to be between $3.975 billion and $4.175 billion, with the midpoint indicating 2% year-over-year growth. It also expects an adjusted EBITDA margin in the range of 19.3-19.9%. To further strengthen its financial position, Tenet Healthcare is likely to continue divesting non-core and underperforming assets, allowing for additional debt reduction and capital reinvestment.Tenet Healthcare’s ValuationFrom a valuation perspective, Tenet Healthcare is still trading cheaper than the industry. Its forward price-to-earnings ratio of 10.72X is lower than both its five-year median of 11.94X and the industry average of 12.34X. Compared with peers like HCA Healthcare, Inc. HCA (13.12X) and Encompass Health Corporation EHC (20.43X), Tenet Healthcare appears relatively undervalued.Image Source: Zacks Investment ResearchA Few HeadwindsThe hospital industry continues to grapple with challenges, particularly as the new administration prioritizes reducing government spending, which could affect hospital profitability. Additionally, uncertainties related to potential funding cuts and the expiration of insurance subsidies add further instability to the sector. In 2023, THC experienced a nearly 10% increase in supply expenses, followed by a 1.6% rise in 2024. With hospital occupancy levels increasing and resource utilization expanding, operating costs may continue to escalate.THC’s Earnings Estimates & Surprise HistoryThe Zacks Consensus Estimate for 2025 adjusted earnings for THC is currently pegged at $12.15 per share, which witnessed upward revisions in the past 30 days. The consensus mark for 2026 EPS indicates further 10.5% growth. The consensus estimate for 2025 and 2026 revenues implies 0.9% and 5.1% year-over-year growth, respectively.It beat earnings estimates in each of the past four quarters, with an average surprise of 46.9%.Tenet Healthcare Corporation Price and EPS Surprise Tenet Healthcare Corporation price-eps-surprise | Tenet Healthcare Corporation QuoteConclusionTenet Healthcare is experiencing growth, driven by rising admissions and a favorable payor mix. Its strong capital position, coupled with investments in AI-driven technologies, should further drive growth in the future. However, the company faces challenges like rising expenses and expectations of reduced government spending. While THC is currently undervalued despite increasing share prices, investors are probably better off not buying the stock right now and waiting for a more favorable entry point. Those who already own the stock should hold on to it.Tenet Healthcare currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Only $1 to See All Zacks' Buys and SellsWe're not kidding.Several years ago, we shocked our members by offering them 30-day access to all our picks for the total sum of only $1. No obligation to spend another cent.Thousands have taken advantage of this opportunity. Thousands did not - they thought there must be a catch. Yes, we do have a reason. We want you to get acquainted with our portfolio services like Surprise Trader, Stocks Under $10, Technology Innovators,and more, that closed 256 positions with double- and triple-digit gains in 2024 alone.See Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Tenet Healthcare Corporation (THC): Free Stock Analysis Report HCA Healthcare, Inc. (HCA): Free Stock Analysis Report Encompass Health Corporation (EHC): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks