Summary
- THC is a healthcare company commanding high EBITDA margins.
- Recent divestitures and spin-offs are making the company leaner and more attractive.
- Despite this, the company is still producing negative results and I would not recommend buying at the moment.
Thesis Summary
Tenet Healthcare Corporation (THC) seems to be on track to grow, increase profitability and improve its financial health. The market has already reacted to this and the share price has increased by around 50%. At the current price, I feel the company is not a buy, although the recent revaluation seems justified.
Company and Industry
THC is a healthcare service company working in a variety of services within the healthcare industry. The company has three main segments: Hospital Operations and Other, Ambulatory Care, and Conifer. The company operates 68 hospitals, 23 surgical hospitals, and approximately 475 outpatient centers, as well as 255 ambulatory surgery, 36 urgent care, and 23 imaging centers in the United States.
Interestingly, the company has undergone a series of divestments over the last 10 years. The last of these features the spinoff of the aforementioned Conifer line of operations. Despite the healthcare industry growing at a projected rate of 5.4% between 2017-2022, the business of health has become increasingly competitive and companies have to stay at the cutting edge to maintain profitability.
THC's stock has varied greatly in price over the last few years. In 2015 the stock was worth ~$60. Since then, it has steadily decreased and now sits at around $30, having started 2019 at only $7. As mentioned above, THC has struggled to maintain profitability and has had to reduce its balance sheet substantially to do so, which we see reflected in the share price. Total assets have flatlined since 2015, and more noticeably, THC has posted negative net income for 4 out of the 5 last years. However, with the Conifer spinoff, and some encouraging data in the last year, some investors are starting to reevaluate this company. At $17, the company was probably worth buying, but can the same be said at today's price?
