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Here's Why You Should Retain Tenet Healthcare (THC) Stock

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Tenet Healthcare Corporation (THC - Free Report) is poised well for growth on the back of its strategic initiatives and cost-curbing measures.

Like other hospital companies, Tenet Healthcare suffered muted business volumes in March and April due to the COVID-19 pandemic.

The company is well-poised for progress, evident from its favorable VGM Score of A. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.

However, it is now better-placed to weather the business loss.

Here we discuss the reasons for retaining this currently Zacks Rank #3 (Hold) company in the investment portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company has been gaining traction from its operational efficiency and lower expenses. Tenet Healthcare started witnessing a rebound in elective procedures during May and June after substantial declines in the same during April.

In this context, the company’s cost-cutting methods are noteworthy. In response to the present scenario, the company furloughed employees. It also planned a reduction in supply, inventory and other purchased services.

The company’s cost-management program comprised primarily headcount cuts and the renegotiation of contracts with suppliers and vendors. Tenet Healthcare managed to save $300 million of costs by the end of 2019. In the first six months of 2020, operating expenses were down 5% year over year.

The hospital company boasts a strong inorganic growth story. It made multiple acquisitions, partnerships and strategic alliances, aimed primarily at boosting the scale of its business, operating capacity and geographical expansion. In 2019, it acquired 10 outpatient businesses (all of which are owned by USPI) and various physician practices for $25 million. Earlier, it constantly partnered with biggies like Cigna, Humana, Aetna, etc.

Tenet Healthcare remains focused on divesting its non-core and unprofitable business units to repay its debt and boost its solvency position. A number of divestitures made in the past three years have not only streamlined its operations but also generated funds to pay down debt. The company’s strategic priorities include completing its hospital divestitures and allocating capital to higher return investments across the capital structure. The company’s spin-off of its Conifer business into an independent publicly-traded company is expected to close by the end of 2021. These divestitures will help Tenet Healthcare focus on its core operations by enhancing its business rejig.

However, Tenet Healthcare withdrew its initial guidance for the full year due to the coronavirus effect on its business. This is a concern for investors.

The company's 2020 earnings estimate is pegged at $3.97, implying a 48.1% rise from the year-ago reported figure.

Price Performance

Shares of this company have gained 26.1% in a year’s time, outperforming the industry’s increase of 0.8%.

Other companies in the same space, such as Community Health Systems Inc. (CYH - Free Report) , HCA Healthcare Inc. (HCA - Free Report) and Acadia Healthcare Company Inc.  (ACHC - Free Report) have also rallied 12.5%, 9.7% and 13.1%, respectively, in the same time frame. All the companies currently have the same Zacks Rank as Tenet Healthcare.

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