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Tenet Healthcare Corp

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Morningstar Rating for Stocks Fair Value Economic Moat Capital Allocation

Tenet Repurchasing Shares at Cheap Levels, Despite Macroeconomic Challenges

Business Strategy and Outlook

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.

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