On Wednesday, Citi updated its outlook on Tenet Healthcare (NYSE:THC), raising the price target to $171.00 from the previous $139.00, while reaffirming a Buy rating on the company's shares. The adjustment follows Tenet's reported second-quarter 2024 EBITDA of $945 million, which exceeded expectations.
This figure includes $915 million excluding retroactive payments from Texas. The company's performance was attributed to several factors, including increased revenue per case at its United Surgical Partners International (USPI) division, strong hospital volume demand, and cost efficiencies in both segments.
Tenet Healthcare has responded to its robust year-to-date (YTD) performance by increasing its 2024 EBITDA guidance by $300 million. This hike includes approximately $200 million from outperformance in the year so far, with the remaining $100 million expected from anticipated growth in the second half of 2024. This forecast does not account for additional supplemental payments.
Despite the typical seasonal weakness expected in the third quarter, Citi anticipates a quarter-over-quarter increase in EBITDA. The firm projects that even excluding divestitures and Michigan supplemental payments, the core growth in the Hospital/Services segment should be about 5%-6%. Citi acknowledges Tenet's significant outperformance to date and suggests that barring a substantial slowdown in current trends, the company should be able to reach its 2024 targets.
Furthermore, after the planned facility sales and associated tax payments, Tenet is expected to leverage over $1 billion in free cash flow (excluding non-controlling interest - FCF-NCI). This financial flexibility is seen as a key driver for potential favorable returns to shareholders. The raised price target to $171 from $139 is based on higher projected EBITDA-NCI estimates for 2025.
In other recent news, Tenet Healthcare Corporation (NYSE:THC) reported a 12% year-over-year increase in net operating revenues for the second quarter, reaching $5.1 billion. The company's adjusted EBITDA also rose significantly to $945 million, with the ambulatory surgery center segment, USPI, witnessing a 21% growth. This growth was driven by increased revenues and growth in specific medical procedures.
In light of these developments, Tenet has raised its full-year 2024 adjusted EBITDA guidance to a range between $3.825 billion and $3.975 billion. The company has also authorized a $1.5 billion share repurchase program as part of its capital deployment strategies.
These strategies are set to focus on expanding ASCs, investing in AI technologies, and returning capital to shareholders. Furthermore, Tenet is looking to expand services in high-demand areas and expects long-term volume growth for their ASC division to be between 1% and 3%. These are some of the recent developments for Tenet Healthcare Corporation.
InvestingPro Insights
Following Citi's optimistic update on Tenet Healthcare (NYSE:THC), the latest data from InvestingPro further underscores the company's robust financial performance. With a market capitalization of $14.12 billion and a striking P/E ratio of 5.64, Tenet Healthcare showcases a potent combination of value and earnings power. The company's revenue growth remains solid, with a 7.4% increase over the last twelve months as of Q1 2024, reflecting its capacity to expand its financial base amidst a challenging healthcare landscape.
InvestingPro Tips highlight Tenet Healthcare's aggressive share buyback strategy and its high shareholder yield, which may be attractive to investors seeking companies with a proactive approach to capital allocation. Additionally, the company's valuation suggests a strong free cash flow yield, aligning with Citi's view on Tenet's financial flexibility and potential for favorable shareholder returns.
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