Tenet Healthcare Corp. THC is well-poised for development on the back of strategic inorganic growth and cost-reduction plan.
Over the past 30 days, the company’s earnings estimates for 2019 and 2020 have been revised 17.6% and 13.6% upward, respectively. This in turn, reflects analysts' optimism on the stock.
The company flaunts a commendable earnings surprise history, having outpaced the Zacks Consensus Estimate in the trailing four reported quarters, the average being 1072.6%. This trend of consecutive estimate beats signifies the company’s operational efficiency.
The company is well-placed for growth, evident from its favorable VGM Score of A. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.
Recently, the company delivered fourth-quarter 2018 adjusted net earnings of 51 cents per share, outperforming the Zacks Consensus Estimate by 112.5%. The top line has also beat the Zacks Consensus Estimate by 2.9%.
The company boasts a strong inorganic growth story. Tenet Healthcare has made numerous acquisitions, partnerships and strategic alliances, aimed primarily at boosting its scale of business, operating capacity and an expanding geographical presence. It has partnered with industry biggies like Cigna, Aetna, UnitedHealth, Humana et al.
In 2018, the company purchased the remaining ownership stake in United Surgical Partners International along with controlling interests in an ophthalmology surgery center in Pennsylvania, a single-specialty spine surgery center in Georgia, two multi-specialty surgery centers in Florida and one in Texas plus a specialty gastroenterology center in Florida. It also bought certain non-controlling ownership portions in a multi-specialty surgery center in California as well as in two surgical hospitals at Oklahoma.
Tenet Healthcare has also been divesting its businesses to focus on its core operations. The company is focused on selling its non-core and unprofitable business units to repay debt and maintain financial liquidity. Multiple divestitures made in the past three years have streamlined its operations and generated funds to clear debts.
The company sold nine Aspen facilities in the United Kingdom, eight hospitals in the United States last year and also completed the sale of three hospitals in the Chicago area earlier this January. The company has also been exploring its strategic alternatives for Conifer, which includes either a sale or a merger, a tax-efficient spin-off or a combination of alternative transactions.
The company also undertook cost-containment initiatives that helped it lower its targeted expenses in 2018. The cost-management program comprised primarily headcount reductions and the renegotiation of contracts with suppliers and vendors. The company is now working on a new $200-million cost-cutting plan with which it expects to realize around $50 million in 2019 and achieve $200 million annualized run-rate savings.
The Zacks Consensus Estimate for current-year earnings per share is pegged at $2.14 on revenues of $17.9 billion.
For 2020, the Zacks Consensus Estimate for earnings stands at $2.84 on $18.6 billion revenues, translating into respective 32.36% and 3.39% year-over-year growth.
The long-term earnings growth rate is expected at 23.2%, above the industry’s average of 14.9%, which is an upside for the company.
Shares of this Zacks Rank #2 (Buy) company have rallied 10.1% in a year's time, outperforming its industry’s rise of 5.9%.
Other Stocks to Consider
Investors interested in the medical sector can also take a look at some other top-ranked stocks like UnitedHealth Group Incorporated UNH, Centene Corporation CNC and WellCare Health Plans, Inc. WCG, each currently carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
UnitedHealth operates as a diversified health care company in the United States. In the last four reported quarters, the company delivered average beat of 3.39%.
Centene operates as a diversified and multi-national healthcare enterprise in the United States. It came up with average earnings surprise of 4.99% in the trailing four reported quarters.
WellCare Health offers managed care services to government-sponsored health care programs. The company pulled off average positive surprise of 15.43% in the preceding four reported quarters.
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