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On Wednesday, Guggenheim initiated coverage on Tenet Healthcare Corporation (NYSE:THC), awarding the stock a Buy rating along with a price target of $165.00, representing significant upside from its current price of $119.51. Trading at a modest P/E ratio of 3.6x with a market capitalization of $11.37 billion, Tenet Healthcare is advancing as a progressive healthcare provider by focusing on two key strategies: expanding its Ambulatory business, which benefits from a shift of inpatient procedures to outpatient settings, and revamping its hospital operations to concentrate on high-acuity procedures.[Want deeper insights? InvestingPro reveals that Tenet Healthcare maintains a GREAT financial health score, with 10+ additional exclusive insights available to subscribers.]
The Ambulatory business, described as fast-growing, high margin, and capital-light, is seen as structurally favorable due to cost savings achieved with similar outcomes when compared to inpatient settings. InvestingPro data shows management has been aggressively buying back shares, while the analyst highlighted that Tenet's recent sales of hospital assets have significantly improved the company's capital structure, with the current debt-to-capital ratio at 0.48.
Since the initial sale of hospitals in November 2023, Tenet Healthcare's stock has surged over 120%, a stark contrast to the S&P 500's increase of more than 20%. Guggenheim attributes a substantial part of this growth to the transfer of debt to equity during the company's deleveraging process, which maintained Tenet's multiple within a stable range.
The analyst predicts that Tenet Healthcare's strategic focus will continue to yield positive results. The company is expected to benefit from significant free cash flow (FCF) generation, competent management, and a blended growth rate situated in the mid-single to high-single digits (MSD-HSD) zone. This blend of factors is anticipated to lead to a higher blended multiple for Tenet Healthcare's shares in the future.
Guggenheim's optimistic outlook on Tenet Healthcare's stock is rooted in the company's operational strategies and financial performance, which are expected to drive shareholder value moving forward.
In other recent news, Tenet Healthcare has seen a series of significant updates. Fitch Ratings upgraded the company's Issuer Default Rating from 'B+' to 'BB-', citing improvements in its competitive position and a substantial reduction in debt by $2.1 billion due to divestitures. The company ended 2024 with $3.0 billion in cash on hand and demonstrated strong EBITDA growth, particularly in its Ambulatory Care segment. In terms of analyst perspectives, Cantor Fitzgerald maintained an Overweight rating with a price target of $177, highlighting stable nursing trends but noting challenges in the anesthesia physician segment. Jefferies also retained an Outperform rating with a target of $185, reflecting confidence in Tenet's valuation amid potential healthcare spending cuts. Morgan Stanley (NYSE:MS) initiated an Overweight rating with a $165 target, emphasizing Tenet's strategic positioning in outpatient services. Truist Securities reiterated a Buy rating with a $175 target, focusing on Tenet's core demand trends and financial flexibility. These developments underscore Tenet Healthcare's ongoing efforts to navigate industry challenges and capitalize on growth opportunities.
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