Western Investment Club | Investment Ideas

Analyst, Adrian Gaymes | Sunday, December 18th, 2022

Tenet Healthcare Corporation (NYSE: THC) Key Metrics

Company Overview Industry Health Care Facilities
Tenet Healthcare is a diversified healthcare services company. Tenet operates an
expansive healthcare network that includes 60 hospitals, and 535 other healthcare Share Price $44.30
facilities (including surgical hospitals, ambulatory surgery centers, imaging centers,
off-campus emergency departments, and micro-hospitals). Tenet also owns Conifer
which provides revenue cycle management and value-based care services to Market Capitalization $4.8B
hospitals, health systems, physician practices, employers, and other clients. The
company operates in three segments, Hospital Operations, Ambulatory Care, and Enterprise Value $15.1B
Conifer.
EV / NTM EBITDA 6.7x
Investment Thesis
1. Valuation views company as a lower quality hospital despite having high
EV/ NTM EBIT 9.0x
quality assets
o THC has most of its hospitals in growing metro areas, but still
trades at a significant discount to most other public hospital Price / NTM Earnings
$100 8.4x
operators $80
o The company has solid core assets in great geographical locations Total Debt / EBITDA 4.0x
$60
o THC generates a significant percentage of its EBITDA from
Ambulatory Service Centers and Conifer, where comparable $40
companies to these segments trade at much higher multiples $20
o Likely due to inconsistent performance leading to investor
$0
fatigue, high leverage, and recent divestures and restructurings
Dec-21 Apr-22 Aug-22 Dec-22
the company is undervalued
2. ASCs are being over-suppressed in the market due to recent weakness
o 3Q 2022 weakness in ASCs drove higher case cancelation rates in than usual, indicating segment weakness
and inciting overreaction
• Management expects to reabsorb approximately half of the excess 3Q deferrals in short-term
o Ambulatory service center space has generally been growing; insurance providers typically prefer them
because they tend to be less expensive, and patience prefer them because they offer more convenience
o Tenet is betting on ASCs; investing $2.5B in USPI in the last two years, including a recent $1.1B acquisition
of SCD creating ownership stake of 86 surgery centers and related support services
o THC is well positioned for continued outpatient migration
3. Tenet Healthcare invests in valuable assets and divests the rest, leading to long-term value currently overlooked
o Tenet has a strong inorganic growth story with numerous acquisitions, partnerships, and alliances
• E.g., strong interest in ASCs (natural consolidator)
• Powerful partnerships poise the company well for long-term growth
o In addition, the company remains focus on divesting its non-core and unprofitable to repay its debt and
maintain financial liquidity
• Including completing hospital divestures and allocating capital to high return investments across the
capital structure

Catalysts & Risks

1. Catalysts: management to decrease and re-rate leverage, organic and inorganic growth opportunities in ASC space,
overperforming performing acquisitions
2. Risks: poor performance in hospitals, continued inconsistent financial performance, underperforming acquisitions