Company Reports

No-moat Tenet Healthcare posted robust first-quarter results thanks to favorable medical utilization trends and effective cost controls. We are maintaining our $104 fair value estimate, as the company continues to optimize its portfolio through hospital divestitures and ambulatory care expansions. With recent deleveraging efforts, Tenet has significantly improved its balance sheet quality, which puts the company closer to its goal of operating 575-600 ambulatory facilities by the end of 2025. Currently, we view Tenet’s shares as fairly valued.

No-moat Tenet ended the year with strong fourth-quarter results above our expectations. We are raising our fair value estimate to $104 per share from $95 mainly due to higher margin projections as the company continues to expand its high-acuity service lines and improve its operating efficiency. We applaud Tenet’s efforts to enhance its credit profile through hospital portfolio optimization and debt retirement. In our view, despite the 60% stock price rally since last November, Tenet’s shares remain moderately undervalued.

Since late 2017, Tenet Healthcare has undergone a massive turnaround effort in the wake of an acquisition strategy that left it with operating inefficiencies and a debt-heavy balance sheet. In recent years, Tenet’s new leadership has improved governance practices, pruned its portfolio of assets, and undergone a restructuring effort. Operationally, Tenet has been expanding its high-acuity service lines in outpatient settings, improving operating efficiencies both inside and outside its healthcare facilities, and increasing focus on service quality. All these factors appear to be positively influencing ROICs at Tenet, which began exceeding its weighted average cost of capital in 2017 by our calculations for the first time since The Vanguard Group acquisition in 2013. We applaud those trends. We also view the firm's increasing focus on the high-margin ambulatory surgery business.

Since late 2017, Tenet Healthcare has undergone a massive turnaround effort in the wake of an acquisition strategy that left it with operating inefficiencies and a debt-heavy balance sheet. In recent years, Tenet’s new leadership has improved governance practices, pruned its portfolio of assets, and undergone a restructuring effort. Operationally, Tenet has been expanding its high-acuity service lines in outpatient settings, improving operating efficiencies both inside and outside its healthcare facilities, and increasing focus on service quality. All these factors appear to be positively influencing ROICs at Tenet, which began exceeding its weighted average cost of capital in 2017 by our calculations for the first time since The Vanguard Group acquisition in 2013. We applaud those trends. We also view the firm's increasing focus on the high-margin ambulatory surgery business.

No-moat Tenet Healthcare announced the sale of three hospitals in South Carolina to Novant Health, a local health system based in the Carolinas. Tenet expects to receive about $1.75 billion of aftertax proceeds from the transaction. We are encouraged to see Tenet’s continued focus on optimizing its hospital operations portfolio. We also believe Tenet’s decision to use the proceeds for debt retirement would strengthen its balance sheet mildly, which looks like a good move to us. Our $95 fair value estimate remains intact, and shares remain highly undervalued despite the 10% rally after this news.

Tenet reported robust third-quarter results that were roughly in line with our expectations. Our $95 fair value estimate remains intact, and following an over 30% decline in Tenet’s stock price since early September, shares look attractive to us. Positively, management raised its 2023 adjusted EBITDA outlook for a third time this year to between $3.365 billion and $3.465 billion related to strong facility utilization trends as well as effective cost controls. Despite our no-moat rating, we recognize Tenet’s leadership in the high-margin, fast-growing ambulatory care market, and we continue to forecast that Tenet’s return on invested capital will stay above its capital costs over the next five years.

Since late 2017, Tenet Healthcare has undergone a massive turnaround effort in the wake of an acquisition strategy that left it with operating inefficiencies and a debt-heavy balance sheet. In recent years, Tenet’s new leadership has improved governance practices, pruned its portfolio of assets, and undergone a restructuring effort. Operationally, Tenet has been expanding its high-acuity service lines in outpatient settings, improving operating efficiencies both inside and outside its healthcare facilities, and increasing focus on service quality. All these factors appear to be positively influencing ROICs at Tenet, which began exceeding its weighted average cost of capital in 2017 by our calculations for the first time since The Vanguard Group acquisition in 2013. We applaud those trends. We also view the firm's increasing focus on the high-margin ambulatory surgery business.

Tenet turned in strong second-quarter results, and management raised its 2023 outlook to recognize these trends. However, even after making mild adjustments to our near-term estimates on these recent results, our fair value estimate of $95 has not changed materially and still remains moderately above recent share prices. Also, while we have a no-moat rating on the firm, we recognize that Tenet's operations have improved substantially in recent years, and we expect returns on invested capital to remain above capital costs throughout our five-year forecast period.

Since late 2017, Tenet Healthcare has undergone a massive turnaround effort in the wake of an acquisition strategy that left it with operating inefficiencies and a debt-heavy balance sheet. In recent years, Tenet has replaced top leadership, refreshed the board, improved governance practices, pruned its portfolio of assets, and undergone a restructuring effort. Operationally, Tenet has focused on flattening layers of management, improving operating efficiencies both inside and outside its healthcare facilities, and increasing focus on service quality. All these factors appear to be positively influencing ROICs at Tenet, which began exceeding its weighted average cost of capital in 2017 by our calculations for the first time since The Vanguard Group acquisition in 2013. We applaud those trends. We also view the firm's increasing focus on the high-margin ambulatory surgery business.

Tenet turned in strong first-quarter results, and management raised its 2023 outlook mildly. Our 2023 assumptions were already on the strong end of management's new guidance ranges, and we do not anticipate materially changing our $95 fair value estimate, which remains well above recent share prices. Also, while our no-moat rating remains, we recognize that Tenet's operations have improved substantially in recent years, and we expect returns on invested capital to remain above capital costs throughout our five-year forecast period.

Tenet Healthcare turned in solid fourth-quarter results that helped it exceed 2022 expectations. Management also provided 2023 goals that appear roughly in line with our expectations. At first glance, we see no reason to adjust our $95 fair value estimate. We continue to view the shares as undervalued even when considering our Very High Uncertainty Rating. While our moat rating remains none, we recognize that Tenet's operations have improved substantially in recent years, and we expect returns on invested capital to remain above capital costs throughout our five-year forecast period.

Tenet turned in third-quarter operating results that were stronger than anticipated. However, given weak medical utilization trends, macroeconomic challenges, and ongoing labor pressures in healthcare services; management trimmed its 2022 outlook ranges, suggesting that the fourth quarter would be weaker than the market was anticipating. While investors may naturally be a bit skittish with the weak near-term outlook, we would highlight that Tenet's adjusted EBITDA guidance for 2022 has changed just 1% at the midpoint, for example. Considering the limited changes that management made to its 2022 outlook, the nearly 30% selloff in early trading appears extreme. While we have trimmed some of our near-term assumptions for 2022-23, we are maintaining our $95 fair value estimate and consider the shares significantly undervalued. While our moat rating remains none, Tenet's operations have improved substantially in recent years, and we expect ROICs to remain above capital costs for the foreseeable future.

Since late 2017, Tenet Healthcare has undergone a massive turnaround effort in the wake of an acquisition strategy that left it with operating inefficiencies and a debt-heavy balance sheet. Led by initiatives endorsed by a large shareholder, Glenview Capital Management (7% stake as of March 2022), Tenet has replaced top leadership, refreshed the board, improved governance practices, pruned its portfolio of assets, and undergone a restructuring effort. Operationally, Tenet has focused on flattening layers of management, improving operating efficiencies both inside and outside its healthcare facilities, and increasing focus on service quality. All these factors appear to be positively influencing ROICs at Tenet, which began exceeding its weighted average cost of capital in 2017 by our calculations for the first time since The Vanguard Group acquisition in 2013. We applaud those trends. We also view the firm's increasing focus on the high-margin ambulatory surgery business, which Tenet management expects to generate about half of company profits by 2023, as a strong strategic choice.

Tenet Healthcare reported strong second-quarter results and maintained its profit and cash flow guidance for 2022, despite trimming its top-line forecast related to a cyberattack that affected some hospitals in the quarter along with COVID-19-related trends and Tenet's own capacity management to ensure economic profitability. With these strong results and maintained guidance, the shares rose in early trading. While we have tinkered with some of our near-term assumptions, we are maintaining our $95 fair value estimate and still consider the shares undervalued. Our moat rating remains none, but Tenet's operations have improved significantly in recent years, and returns on invested capital stand above the weighted average cost of capital.

Tenet turned in stellar first-quarter results, and we are raising our fair value estimate to $95 per share from $66 previously to account for the company's recent strong performance and declining debt leverage. The major driver of our fair value estimate change is our lowered cost of capital assumption ($20 of our fair value change) due to ongoing reductions in net debt leverage, which now sits around 4 times adjusted EBITDA on active debt repayment and increasing profits. Considering our assessment of Tenet's credit risk and recent spreads on its bonds, we have lowered our cost of debt assumption much closer to market rates than we previously assumed. Also, investors should note that Tenet's ROICs currently stand well over WACC, and there could be further upside to our fair value estimate (about $10 per share) if the moat rating were raised to narrow from none, all else being equal.

Since late 2017, Tenet Healthcare has undergone a massive turnaround effort in the wake of an acquisition strategy that left it with operating inefficiencies and a debt-heavy balance sheet. Led by initiatives endorsed by a large shareholder, Glenview Capital Management (7% stake as of March 2022), Tenet has replaced top leadership, refreshed the board, improved governance practices, pruned its portfolio of assets, and undergone a restructuring effort. Operationally, Tenet has focused on flattening layers of management, improving operating efficiencies both inside and outside its healthcare facilities, and increasing focus on service quality. All these factors appear to be positively influencing returns on invested capital at Tenet, which began exceeding its weighted average cost of capital in 2017 by our calculations for the first time since The Vanguard Group acquisition in 2013. We applaud those trends. We also view the firm's increasing focus on the high-margin ambulatory surgery business, which Tenet management expects to generate about half of company profits by 2023, as a strong strategic choice.

Tenet turned in a stellar fourth quarter that pushed 2021 results above our profit and cash flow expectations. However, with some near-term concerns expected to pressure 2022, management gave guidance that was slightly lower than our previous expectations. We are maintaining our $66 fair value estimate after adjusting our assumptions for those near-term concerns, which were offset by its strong recent results in our model. Additionally, with ROICs well over WACC after recent capital allocation activities like pruning underperforming assets, acquiring high-margin ambulatory surgery centers, and reducing debt leverage, we continue to see room for upside to our current no-moat rating on Tenet.

After Sen. Joe Manchin (D-VA) announced opposition to the Build Back Better bill, we do not expect Congress to enact policies that will significantly increase the insured rate in the U.S. beyond recent measures. While we view this development as mildly negative operationally for medical services firms, positively, those concerns appear likely to be at least offset in our fair value estimates by a reversal of our assumption that the U.S. corporate tax rate would rise and recent cash flows. However, maintaining the status quo in the U.S. healthcare system could keep ESG risks alive for medical service firms in the long run.

On Nov. 8, Tenet announced plans to expand its ambulatory surgery center footprint by further combining forces with SurgCenter Development, after another ASC deal about a year ago. We have moderately increased our fair value estimate for Tenet and generally view the transaction as positive, representing another example of the company's shrewd capital allocation since new management took over in 2017. If the firm continues to make positive moves like this and looks likely to generate economic profits, we would consider raising Tenet's current no-moat rating, which would push our fair value estimate even closer to recent share prices with no other changes to our assumptions.

Since late 2017, Tenet Healthcare has undergone a massive turnaround effort in the wake of an acquisition strategy that left it with operating inefficiencies and a debt-heavy balance sheet. Led by initiatives endorsed by its largest shareholder, Glenview Capital Management (15% stake as of March), Tenet has replaced top leadership, refreshed the board, improved governance practices, pruned its portfolio of assets, and undergone a restructuring effort. Operationally, Tenet has focused on flattening layers of management, improving operating efficiencies both inside and outside its healthcare facilities, and increasing focus on service quality. All these factors appear to be positively influencing returns on invested capital at Tenet, which began exceeding its weighted average cost of capital in 2017 by our calculations for the first time since the Vanguard Group acquisition in 2013. We applaud those trends. We also view the firm's increasing focus on the high-margin ambulatory surgery business, which Tenet management expects to generate about half of company profits by 2023, as a strong strategic choice.