Tenet Healthcare Corporation (THC - Free Report) is poised well for growth on the back of its strategic initiatives and cost-curbing methods.
Although the company suffered muted business volumes in last two weeks of March and April due to the coronavirus breakout, it is now better-placed to weather the business loss.
Over the past seven days, the company has witnessed its 2020 earnings estimates move north 0.8%.
Here we discuss the reasons for retaining this currently Zacks Rank #3 (Hold) company in your investment portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company performed impressively in the second quarter wherein its earnings delivered $1.26 per share. The Zacks Consensus Estimate was of a loss of 99 cents per share. Further, the bottom line soared 125% year over year, mainly owing to operational efficiency in its business segments and lower expenses.
The company witnessed an improvement in elective procedures during May and June after suffering substantial declines in the same during April.
In response to the present troubled scenario, the company furloughed employees as a cost-control measure. It successfully reduced expenses in 2018 and 2019 through its cost-cutting initiatives. In the first six months of the year, operating expenses were down 5% year over year. These cost-containing initiatives should aid margins.
Tenet Healthcare boasts a solid inorganic growth story. It made numerous acquisitions, partnerships and strategic alliances to primarily boost scale of business, operating capacity and an expanding geographical presence. In 2019, it acquired 10 outpatient businesses (all of which are owned by USPI) and various physician practices for $25 million. All these strategic moves by the company bode well for the long haul.
Tenet Healthcare deepens focus on divesting its non-core and unprofitable business units to repay its debt and maintain financial liquidity. A number of divestitures taken place in the past three years have streamlined its operations and generated funds to pay down debt. The company’s strategic priorities include completion of hospital divestitures and allocation of capital to higher-return investments across its capital structure. The company’s spin-off of its Conifer business is expected to close by the end of 2021. These divestments will help it concentrate on its core operational activities.
However, total debt of the company accounts for 96.2% of its capital, higher than the industry’s average of 94.8%. Its times interest earned now is 1.4x, much lower than its industry’s average of 3x. As of Jun 30, 2020, the company had $3.1 billion of excess cash in hand and $1.9 billion of available capacity under its line of credit facility. However, the same is much lower than its long-term debt of $15.7 billion. Although it has no borrowings outstanding under its line of credit, its lack of financial flexibility is a woe.
In the past year, the stock has gained 34% against the industry’s decline of 0.1%.
Evidently, the company’s stock performance looks upbeat against other share price performances in the same space. Notably, MEDNAX Inc. (MD - Free Report) and Universal Health Services, Inc. (UHS - Free Report) have lost 21% and 23.8%, respectively, while HCA Healthcare Inc. (HCA - Free Report) has gained 8.2% over the same time frame. All the companies hold the same Zacks Rank as Tenet Healthcare.
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