On Wednesday, Morgan Stanley 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.
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