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Tenet Healthcare (THC) Up 126.9% in 6 Months: More Room for Rally?

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Tenet Healthcare Corporation (THC - Free Report) has been favored by investors on the back of its strategic initiatives and cost-reduction measures.
Over the past seven days, its 2020 and 2021 earnings estimates have moved 0.5% and 5.5% north, respectively.

Shares of this presently Zacks Rank #3 (Hold) company have surged 126.9% in six months’ time, outperforming its industry’s increase of 73.6%.

The price performance looks stellar when compared to other companies’ stock movements in the same space, such as HCA Healthcare, Inc. (HCA - Free Report) , Acadia Healthcare Company, Inc. (ACHC - Free Report) and MEDNAX, Inc. (MD - Free Report) , which have gained 77.7%, 96.3% and 38.8%, respectively, over the same time frame. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

This hospital company boasts a solid inorganic growth story. Tenet Healthcare made numerous acquisitions, partnerships and strategic alliances, aimed primarily at boosting its scale of business, operating capacity and an expanding geographical presence. It closed the buyout of an ASC in Washington and a new surgical hospital in an ASC in the Central Valley of California.

The company recently announced that it will sell its urgent care platform to FastMed Urgent Care. This deal is in line with its strategic efforts to streamline its Ambulatory Care segment for growing its surgery centre business and scrapping the urgent care business. To this end, the company plans to buy a portfolio of up to 45 ambulatory surgery centers (ASCs) from SurgCenter Development (SCD) for $1.1 billion.

Tenet Healthcare deepens its focus on divesting its non-core and unprofitable business units to repay its debt and maintain financial liquidity. A number of divestitures made in the past three years have rationalized its operations and generated funds to pay down its debt. The company’s spin-off of its Conifer business into an independent publicly-traded company is expected to close by the end of 2021.

After grappling with high operating expenses over the past few years, the company came up with cost-cutting measures targeted to reduce its expenses. In the first nine months of 2020, operating expenses dipped 3.9% year over year. In response to the present turbulent scenario, the company furloughed employees. It also planned a reduction in supply, inventory and other purchased services.

Further Upside Left?

We expect the company to continue performing well as it steadily pursues its strategies to lower its debt load and concentrate on core operations. Other factors, such as cost management are likely to contribute to margins as well.

The stock carries an impressive 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.

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