Tenet has cure for slow growth
Recent Price |
$167 |
Dividend |
$0.00 |
Yield |
0% |
P/E Ratio |
15 |
Shares (millions) |
99.9 |
Long-Term Debt as % of Capital |
60% |
52-Week Price Range |
$171.20 - $52.08 |
In the first four months of 2024, Tenet Healthcare ($167; THC) completed the sale of 13 hospitals for a total of nearly $4 billion. Despite those divestitures, the company managed to slightly grow net operating revenue in the June quarter, while per-share profits jumped 60%.
We appreciate those numbers for two key reasons. First, the sales proceeds helped fund the payoff of debt. Second, the profit growth reflects an encouraging blend of volume and pricing gains. Tenet is rated Buy.
A healthy mix
In the first six months of 2024, Tenet’s total debt fell by $3.4 billion, or 21%. In the June quarter, the hospital unit (about four-fifths of revenue) managed a 5.2% increase in same-hospital inpatient admissions. Revenue per adjusted admission increased 5.7%, helped by an increase in higher-acuity (more complex and expensive) cases. The ambulatory care unit, which operates surgery centers, delivered even better growth.
Credit much of Tenet’s bottom line gains to improved profitability — not surprising, given the company’s ongoing focus on high-acuity services. Operating profit margins reached 18.8% in the 12 months ended June, up from 17.5% a year earlier and 16.5% three years earlier. Analysts expect growth to slow in coming quarters. The consensus for the September quarter (release set for Oct. 29) calls for profit growth of 65%, then increases of 6% in 2025 and 12% in 2026. In our view, those targets seem conservative.
Tenet has topped the earnings consensus by at least 15% in eight consecutive quarters, averaging surprises of 43% over that period. Given that history, further surprises would not surprise us. In addition, earnings projections for both 2025 and 2026 have jumped at least 5% over the last 90 days, reflecting rising confidence in Tenet’s ability to grow the bottom line.
The Medicaid redetermination that removed more than 25 million from the insured rolls has driven many of them into health exchanges, a more profitable business for Tenet.
Tenet shares have gained 14% over the last three months, 61% over the last six months, and 109% for 2024. Despite those lofty returns, the stock remains attractively valued relative to peers.
At 16 times trailing earnings and 14 times projected 2025 profits, Tenet trades at least 14% below the industry median. Reflecting its superior growth prospects (estimated five-year profit growth of 21% annually), Tenet carries a price/earnings-to-growth (PEG) ratio of 0.7, versus 1.6 for the industry.
Parting shot
Tenet pays no dividend but has invested heavily in its own shares, reducing the stock count 6% over the last year. In July, the company authorized a new $1.5 billion buyback program, the equivalent of 10% of outstanding shares.
Tenet Healthcare Corp., 14201 Dallas Parkway, Dallas, TX 75254, (469) 8932200, www.tenethealth.com.
Quarter |
Per-Share Earnings* |
Sales Change |
Quarterly Price Range |
P/E Ratio
Range |
Jun '24 |
$2.31 |
vs. |
1.44 |
0% |
$142.36 |
- |
$90.03 |
16 - 10 |
Mar '24 |
3.22 |
vs. |
1.42 |
7% |
107.80 |
- |
73.21 |
15 - 210 |
Dec '23 |
2.68 |
vs. |
1.96 |
8% |
78.55 |
- |
51.04 |
13 - 8 |
Sep '23 |
1.44 |
vs. |
1.44 |
6% |
84.13 |
- |
64.96 |
13 - 10 |
Year
(Dec.) |
Sales
(Bil.) |
Per-Share Earnings* |
Per-Share
Dividend |
52-Week Price Range |
P/E Ratio
Range |
2023 |
$20.5 |
$6.98 |
$0.00 |
$85.40 |
- |
$48.19 |
12 - 7 |
2022 |
19.2 |
6.80 |
0.00 |
92.65 |
- |
36.69 |
14 - 5 |
2021 |
19.5 |
7.58 |
0.00 |
83.69 |
- |
38.03 |
11 - 5 |
2020 |
17.6 |
7.92 |
0.00 |
42.78 |
- |
10.00 |
5 - 1 |
Quadrix Scores
Overall |
Momen-
tum |
Value |
Quality |
Financial
Strength |
Earnings
Estimates |
Perform-
ance |
Reversion |
95 |
91 |
84 |
90 |
39 |
64 |
59 |
11 |
* Earnings exclude special items.
NA Not Available.
Quadrix® scores are percentile ranks, with 100 the best.
e Dividend and yield estimated.