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Tenet Healthcare Soars 117.1% YTD: Will Growth Continue?

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Tenet Healthcare Corporation (THC - Free Report) has been gaining momentum on the back of its buyouts and divestitures along with restructuring initiatives.

Year to date, shares of this Zacks Rank #3 (Hold) company have skyrocketed 117.1% compared with its industry's 18.1% rally.



What’s Driving the Stock?

Tenet Healthcare boasts a solid inorganic growth story. The company made several buyouts and alliances, aimed at boosting its scale of business and operating capacity plus enhancing its geographical presence. Several partnerships with industry giants like with Blue Cross Blue Shield of Texas, Cigna, Aetna, UnitedHealth and Humana deserve mention.

In the first nine months of 2019, the company purchased controlling interests in two multi-specialty surgery centers in Virginia, multi-specialty surgery centers in Florida, Tennessee and Colorado and a single-specialty endoscopy center in Florida, etc.

Tenet Healthcare also firms up focus on selling its non-core and unprofitable business units to repay debts and maintain financial liquidity. A number of divestitures made in the past three years streamlined its operations and generated funds to pay down debt. In the first quarter of 2019, the company sold three hospitals in the Chicago area.

It will complete the spin-off of its Conifer business as an independent publicly traded company, which is expected to close by the end of 2021. The deal would likely reduce its debt burden by using the transaction proceeds.

The company’s cost-reduction initiatives helped it lower its targeted expenses in 2018. Its cost-management program comprised primarily headcount reductions and the renegotiation of contracts with suppliers and vendors. Total operating expenses were almost unchanged in the first nine months of 2019.

Tenet Healthcare also made restructuring efforts, on the back of which debt level dipped 1% year over year in 2018. Although long-term debt inched up marginally in the first nine months of 2019, interest expenses slid 2.1% year over year. Given its reorganizing plans, we expect the company to lower its debt level further.

Following third-quarter 2019 results, the company updated its 2019 outlook. It now expects adjusted earnings per share between $2.25 and $2.91, the mid-point suggesting a 148% surge from the reported figure of 2018. Adjusted EBITDA is estimated between $2.650 billion and $2.750 billion, the mid-point implying an increase of 5.5% from the 2018 reported figure. For 2019, the company expects revenues in the $18.35-$18.55 billion band, the mid-point indicating a 0.7% uptick from the 2018 figure.

Is Further Upside Left?

We expect the company to witness a consistent price surge on the back of its solid fundamentals, such as divestitures and restructuring plans.

Its long-term growth rate stands at 18.8%, above the industry average of 12.1%.

The company has witnessed its 2019 estimates move 1.5% north over the past seven days.

Stocks to Consider

Investors interested in the medical sector might consider some better-ranked stocks like Select Medical Holdings Corporation (SEM - Free Report) , WellCare Health Plans, Inc. and Genesis Healthcare, Inc. (GEN - Free Report) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Select Medical Holdings operates critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics and occupational health centers. In the trailing four quarters, the company’s average beat was 11.07%. The stock sports a Zacks Rank #1.

WellCare Health offers managed care services to government-sponsored health care programs. The company pulled off average positive surprise of 17.32% in the preceding four quarters. It carries a Zacks Rank #2 (Buy).

Genesis Healthcare operates skilled nursing facilities and assisted/senior living homes. In the last four quarters, the company delivered average beat of 80.96%. It has a Zacks Rank of 1.

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