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Tenet Healthcare (THC) Gains 42.1% YTD: More Room to Run?
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Tenet Healthcare Corporation (THC - Free Report) has surged 42.1% year to date, outperforming the 6.8% rise of the industry. While the Medical sector has decreased 3.8%, the Zacks S&P 500 composite has risen 8.4%. With a market capitalization of $7.1 billion, the average volume of shares traded in the last three months was about 1.5 million.
Strong Ambulatory Care business, improving patient volumes, higher acuity service line expansion and reducing labor costs are driving the stock. Tenet Healthcare benefits from contractual rate increases in the Conifer unit and outpatient service business growth..
It has a VGM Score of A. The Style Score rates stocks on their combined weighted styles, helping to identify those with the most attractive value, best growth and most promising momentum.
Image Source: Zacks Investment Research
Favorable Factors
Let’s delve deeper to unearth the factors working in favor of this Zacks Rank #3 (Hold) stock.
The Zacks Consensus Estimate for 2023 earnings per share is pegged at $5.72,which rose 0.5% since the past week. THC beat earnings estimates in all the past four quarters, with an average of 49.4%. The consensus mark for 2023 revenues is pegged at $20 billion, indicating 4.5% growth from the figure reported in 2022.
On the operations front, reducing labor contract costs are likely to boost THC’s margins in the coming days. In the first quarter, the company was able to lower its contract labor-related costs (as a percentage of salaries, wages and benefits) by 0.8% year over year. It expects further reduction in labor-related costs as it is delivering well on its recruiting and retention measures. This indicates that THC’s cost-management program is bearing fruits and profits are expected rise in the future.
Improving Ambulatory Care business is likely to play a major role in THC’s growth story. It provided 18% to total segmental revenues in the first quarter. Segmental revenues are anticipated to rise on the back of strong operations of USPI Holding Company.
Growing service lines and better pricing yield will support the segment. Its aim to strengthen the USPI surgery center business will further trigger margin expansion.
THC is likely to boost USPI's network by more than 100 centers by 2025 end. This is expected to be achieved through M&A activities, partnerships and joint ventures.
THC opened three new centers this quarter and has more than 25 centers in the syndication or construction stage. It expects to invest $250 million in its Ambulatory M&A every year.
Tenet’s long inorganic growth story should boost operating capacity, scale of business and overall geographical presence.
Risks
Despite the upside potential, there are some factors that investors should keep an eye out for.
Its ROE stands at 28.7X, way lower than the industry's average, reflecting inefficiency in utilizing shareholders' funds. A weak balance sheet, with low cash and high debt, is concerning. A softer 2023 guidance for major metrics like Adjusted EBITDA and Adjusted EPS is worrisome.
Nevertheless, we believe that a systematic and strategic plan of action will drive long-term growth.
Amphastar’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, the average beat being 33.8%. The consensus estimate for AMPH’s 2023 earnings and revenues suggests improvements of 20.8% and 17.4%, respectively, from year-ago reported figures.
ICU Medical’s earnings surpassed estimates in three of the last four quarters, missed once, the average beat being 9.5%. The Zacks Consensus Estimate for ICUI’s 2023 earnings and revenues indicates rises of 7.3% and 1.3%, respectively, from the prior-year reported figures.
ANI Pharmaceuticals’ earnings outpaced estimates in each of the trailing four quarters, the average beat being 68.6%. The Zacks Consensus Estimate for ANIP’s 2023 earnings and revenues implies increases of 143.4% and 27.1%, respectively, from the prior-year reported figures.
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Tenet Healthcare (THC) Gains 42.1% YTD: More Room to Run?
Tenet Healthcare Corporation (THC - Free Report) has surged 42.1% year to date, outperforming the 6.8% rise of the industry. While the Medical sector has decreased 3.8%, the Zacks S&P 500 composite has risen 8.4%. With a market capitalization of $7.1 billion, the average volume of shares traded in the last three months was about 1.5 million.
Strong Ambulatory Care business, improving patient volumes, higher acuity service line expansion and reducing labor costs are driving the stock. Tenet Healthcare benefits from contractual rate increases in the Conifer unit and outpatient service business growth..
It has a VGM Score of A. The Style Score rates stocks on their combined weighted styles, helping to identify those with the most attractive value, best growth and most promising momentum.
Image Source: Zacks Investment Research
Favorable Factors
Let’s delve deeper to unearth the factors working in favor of this Zacks Rank #3 (Hold) stock.
The Zacks Consensus Estimate for 2023 earnings per share is pegged at $5.72,which rose 0.5% since the past week. THC beat earnings estimates in all the past four quarters, with an average of 49.4%. The consensus mark for 2023 revenues is pegged at $20 billion, indicating 4.5% growth from the figure reported in 2022.
On the operations front, reducing labor contract costs are likely to boost THC’s margins in the coming days. In the first quarter, the company was able to lower its contract labor-related costs (as a percentage of salaries, wages and benefits) by 0.8% year over year. It expects further reduction in labor-related costs as it is delivering well on its recruiting and retention measures. This indicates that THC’s cost-management program is bearing fruits and profits are expected rise in the future.
Improving Ambulatory Care business is likely to play a major role in THC’s growth story. It provided 18% to total segmental revenues in the first quarter. Segmental revenues are anticipated to rise on the back of strong operations of USPI Holding Company.
Growing service lines and better pricing yield will support the segment. Its aim to strengthen the USPI surgery center business will further trigger margin expansion.
THC is likely to boost USPI's network by more than 100 centers by 2025 end. This is expected to be achieved through M&A activities, partnerships and joint ventures.
THC opened three new centers this quarter and has more than 25 centers in the syndication or construction stage. It expects to invest $250 million in its Ambulatory M&A every year.
Tenet’s long inorganic growth story should boost operating capacity, scale of business and overall geographical presence.
Risks
Despite the upside potential, there are some factors that investors should keep an eye out for.
Its ROE stands at 28.7X, way lower than the industry's average, reflecting inefficiency in utilizing shareholders' funds. A weak balance sheet, with low cash and high debt, is concerning. A softer 2023 guidance for major metrics like Adjusted EBITDA and Adjusted EPS is worrisome.
Nevertheless, we believe that a systematic and strategic plan of action will drive long-term growth.
Key Picks
Some better-ranked stocks in the Medical space are Amphastar Pharmaceuticals, Inc. (AMPH - Free Report) , ICU Medical, Inc. (ICUI - Free Report) and ANI Pharmaceuticals, Inc. (ANIP - Free Report) , each currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Amphastar’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, the average beat being 33.8%. The consensus estimate for AMPH’s 2023 earnings and revenues suggests improvements of 20.8% and 17.4%, respectively, from year-ago reported figures.
ICU Medical’s earnings surpassed estimates in three of the last four quarters, missed once, the average beat being 9.5%. The Zacks Consensus Estimate for ICUI’s 2023 earnings and revenues indicates rises of 7.3% and 1.3%, respectively, from the prior-year reported figures.
ANI Pharmaceuticals’ earnings outpaced estimates in each of the trailing four quarters, the average beat being 68.6%. The Zacks Consensus Estimate for ANIP’s 2023 earnings and revenues implies increases of 143.4% and 27.1%, respectively, from the prior-year reported figures.