Tenet Stock Rises 24.6% in 3 Months: Is This Your Buy Signal?

Tenet Healthcare Corporation THC shares have returned 24.6% in the past three months, outperforming both the hospital industry and the S&P 500 Index. Over this timeframe, the industry and the S&P 500 Indexhave gained 20.8% and 6.4%, respectively. 

Currently priced at $163.87, the stock is just 1% below its 52-week high. This proximity underscores investor confidence and market optimism about this hospital company's prospects. Moreover, the stock is trading above its 50-day and 200-day moving averages, signaling strong upward momentum.

3-Month Price Performance

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Decoding THC's Bright Prospects

The growing senior population and increasing prevalence of diseases are expected to drive long-term demand for hospital services. Tenet Healthcare is well-positioned to benefit from this trend through strategic acquisitions and the development of new facilities. These expansion efforts aim to help Tenet capture more market share in a highly fragmented healthcare market, which will boost its adjusted admissions, emergency room visits and hospital surgeries.

Improving labor market conditions and effective staffing solutions are allowing the company to hire more workers and reopen services that were earlier shut down due to pandemic-related challenges. This increased capacity is expected to meet the rising demand for healthcare services. The company's strong second-quarter results reflect this positive growth trend.

Tenet's robust Q2 performance led it to raise its 2024 forecast. Net operating revenues from the Hospital segment are now expected to be between $16.3 billion and $16.5 billion, up from the previous range of $15.9 billion to $16.1 billion. Additionally, adjusted EBITDA is now projected to be between $3.825 billion and $3.975 billion, compared to the earlier estimate of $3.5 billion to $3.7 billion.

THC's Strategic Efforts

By the end of the second quarter, Tenet had stakes in 520 ambulatory surgery centers and 24 surgical hospitals. The company expects its transformative efforts to boost margins and free cash flow while creating a diversified business mix that can thrive in any political or regulatory environment. This approach will help reduce risks for investors.

Tenet Healthcare is focusing more on ambulatory surgery centers to tap into the rising demand for outpatient services. By leveraging its partnership with United Surgical Partners International, the company aims to expand its network, enhance operational efficiency, and improve profit margins.

Strategic investments in artificial intelligence-enabled technologies are set to enhance both clinical and administrative workflows, boosting overall efficiency. These advancements will likely reduce costs, shorten patient wait times and significantly improve the patient experience.

Alongside favorable industry trends, THC's focus on operational efficiency and rising net revenue per caseare expected to drive further profit growth, which is reflected by the revised estimates. Also, it doesn't shy away from divesting non-core and unprofitable business units to repay debt, maintain financial liquidity and make higher-return investments.

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 $10.70 per share, indicating a 53.3% 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: A Value-Driven Choice

Despite the recent growth in stock price, 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 15.07X, lower than the industry average of 16.19X. The company has a Value Score of A.

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In comparison, its peers like HCA Healthcare, Inc. HCA and Universal Health Services, Inc. UHS are currently trading at forward 12-month price-to-earnings of 16.43X and 13.91X, respectively.

Final Verdict: Buy THC Now

With the stock currently trading at a discount and benefiting from efficiency-enhancing initiatives and favorable industry trends, Tenet appears to have significant growth potential. Investors may consider accumulating more shares, as improving labor market conditions and higher admissions are expected to provide additional support for growth. The upward revisions in estimates are suggesting a promising outlook ahead.

As such, Tenet currently sports a Zacks Rank #1 (Strong Buy).

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