Tenet Healthcare Corporation (THC - Free Report) suffered weak business volumes recently due to the coronavirus breakout but the easing of restrictions should help it recover.
Here we discuss the reasons for retaining this 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.
Given the company’s strong fundamentals, it is well-placed to weather the business loss from the pandemic.
Thus, the recent weakness in business volumes appears to be just a blip and that the metric should recover once the prevalent market volatility subsidies.
In fact, hospital companies are witnessing a surge in admissions with the relaxation of restrictions. Aaprt from Tenet Healthcare, its peers including HCA Healthcare, Inc. (HCA - Free Report) and Universal Health Services (UHS - Free Report) saw volume recovery in May.
In the first quarter of 2020, the company delivered adjusted net earnings of $1.28 per share, beating the Zacks Consensus Estimate by 433.3%. Further, the bottom line soared 113.3% year over year, mainly owing to operational efficiency in its business segments along with a favourable income tax benefit. The company reported net income from continuing operations of $94 million against the year-ago quarter’s net loss of $20 million.
In response to the present troubled scenario, the company furloughed employees as a cost-curbing measure. It successfully reduced expenses in 2018 and 2019 through its cost-cutting initiatives. Per its last earnings call, it also announced plans to lower supply, inventory and other purchased services. These cost-cutting initiatives should aid margins.
The company is also known for divesting its businesses to mitigate its risk profile, streamline its operations and pay down its debts. Its strategic priorities include completion of hospital divestitures and allocation of capital to higher-return investments The company’s spin-off of its Conifer business into an independent publicly-traded company is expected to close by the end of 2021. It is likely to improve its debt burden by using the proceeds from this transaction.
In the past year, the stock has gained 13.3% against the industry’s decline of 13.2%.
Also, the company’s stock performance looks upbeat when compared with others in the same space. Notably, MEDNAX Inc. (MD - Free Report) , Acadia Healthcare Company, Inc., and Universal Health Services have lost 36.3%, 10.6% and 10.7%, respectively, over the same time frame. While MEDNAX and Universal Health carry a Zacks Rank #4 (Sell), Acadia Healthcare holds the same Zacks Rank as Tenet Healthcare.
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