Analyst Note
| Julie Utterback, CFA |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.