Tenet Healthcare Corp. is poised for strong revenue growth as the hospital chain integrates its recently completed acquisition of Vanguard Health Systems and grows its Conifer Health solutions business, according to Goldman Sachs analysts who raised their rating on the stock.
Analysts Brian Zimmerman and Matthew Borsch said in a Tuesday morning research note they now see Dallas-based Tenet as one of their top hospital picks due to a solid growth profile and potential upside.
Tenet shares rose 2 percent in premarket trading.
Tenet runs 77 hospitals, 173 outpatient centers and Conifer Health Solutions, which offers business process services to health care providers. It said Oct. 1 that it completed its acquisition of fellow hospital operator Vanguard, a $1.8 billion deal the company had announced in June.
The Vanguard deal will expand Tenet's presence in new markets and will wind up being a strategic positive, according to the analysts, who raised their rating on the company's shares to "buy" from "neutral."
The analysts also boosted their coverage view on hospital stocks to "attractive" from "neutral." They said lukewarm sentiment toward the health care overhaul and sluggish utilization has dictated trading levels with the stocks. But they believe admissions will pick up in the fourth quarter and the overhaul will become a positive for the industry. The federal law aims to provide health insurance for millions of people, which will reduce the number of uninsured patients hospitals treat.
"While hospitals are up significantly this year, we see additional upside to current trading levels, as investors have been slow to digest the magnitude of the industry tailwinds surrounding healthcare reform, fundamental improvement, and consolidation," the analysts wrote.
Shares of Tenet climbed 91 cents to $47.01 in premarket trading Tuesday about 90 minutes before the markets opening. That put the stock up more than 44 percent so far this year.