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On Wednesday, Morgan Stanley (NYSE:MS) initiated coverage on Tenet Healthcare Corporation (NYSE:THC) with an Overweight rating and a price target set at $165.00. The firm’s analysts highlighted the company’s strategic positioning to capitalize on the ongoing shift towards outpatient services and more affordable care options. They pointed to Tenet’s ability to expand its United Surgical Partners International (USPI) business through new developments and smaller acquisitions. With a current market capitalization of $12.44 billion and trading at a P/E ratio of just 3.97x, InvestingPro analysis suggests the stock may be undervalued relative to its peers.
The analysis by Morgan Stanley also noted Tenet’s effective management of its acute care business, which accounts for 78% of revenue and 55% of EBITDA. The company’s repositioning efforts have resulted in over $7 billion in proceeds from the sale of assets. Since 2019, Tenet has improved its EBITDA margins by 670 basis points, reaching 19.3%, and significantly decreased its net leverage ratio to 2.5 times. The company generated $20.66 billion in revenue over the last twelve months, maintaining its position as a prominent player in the healthcare sector.
Despite these improvements, Tenet’s stock has experienced a downturn, falling 22% since the election. This underperformance is in contrast to its peers and the broader market, with Tenet lagging behind by 600 basis points and notably underperforming compared to the S&P 500 and the healthcare sector overall.
Morgan Stanley’s commentary suggests that uncertainties surrounding potential changes in healthcare policy and government spending cuts have been a drag on Tenet’s stock performance. However, they believe that the current market conditions have only delayed, not derailed, the potential for a re-rating of the stock. The firm remains optimistic about Tenet’s prospects for multiple expansion rather than contraction moving forward. For deeper insights into THC’s valuation and growth potential, access the comprehensive Pro Research Report available on InvestingPro, which offers detailed analysis of the company’s financial health and future prospects.
In other recent news, Tenet Healthcare has seen a series of significant developments that investors may find noteworthy. Fitch Ratings upgraded Tenet Healthcare’s Issuer Default Rating from ’B+’ to ’BB-’, citing the company’s improved competitive position and substantial debt reduction of $2.1 billion through divestitures in 2024. This upgrade reflects Tenet’s enhanced liquidity, with $3.0 billion in cash on hand by the end of 2024, and a reduced EBITDA leverage to 3.9x. Additionally, Fitch anticipates continued EBITDA growth and margin improvement in the coming years.
Analyst firms have also provided updated ratings for Tenet Healthcare. Truist Securities reiterated a Buy rating, highlighting Tenet’s strong demand trends and financial flexibility, while TD Cowen initiated coverage with a Buy rating, emphasizing the company’s strategic direction and operational improvements. Cantor Fitzgerald maintained an Overweight rating, noting the company’s earnings aligned with expectations despite policy uncertainties. Meanwhile, Raymond (NSE:RYMD) James adjusted its price target to $185, maintaining an Outperform rating after Tenet’s fourth-quarter 2024 results exceeded expectations.
These developments indicate a positive outlook from multiple analysts, with Tenet’s strategic moves and financial performance being key factors in their assessments.
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