Tenet Healthcare Corporation THC, a leading U.S. diversified healthcare services company, is currently trading at an attractive valuation. Its forward price-to-earnings (P/E) ratio of 10.78X is lower than both its five-year median of 11.94X and the industry average of 12.05X. Compared to peers like HCA Healthcare, Inc. HCA (12.60X) and Encompass Health Corporation EHC (20.60X), Tenet appears relatively undervalued. The company also holds a strong Value Score of A, reinforcing its appeal to value-focused investors.

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Tenet Healthcare’s cash flow position is another positive indicator. Over the past 12 months, the company generated $1.1 billion in free cash flow. Its price-to-free cash flow (P/FCF) ratio stands at 11.21X — significantly below the broader medical sector’s average of 22.75X — suggesting financial stability and efficient capital management.

With THC stock trading at a discount, we take a closer look at its growth drivers and potential risks to assess whether it presents a compelling buying opportunity at this time.

THC’s Strengths Are on Full Display

Beyond valuation, Tenet Healthcare is currently at the top position among its peers, reflecting its strong market presence and competitive advantage. The stock has jumped more than 40% in the past year, outperforming both the industry average and the S&P 500 Index.

One-Year Price Performance – THC, HCA, EHC, Industry & S&P 500

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In its latest quarterly report released earlier this month, Tenet Healthcare posted adjusted earnings per share (EPS) of $3.44, exceeding the Zacks Consensus Estimate by 17.4% and outperforming management’s projected range of $2.69-$3.31. This strong performance was driven by higher same-hospital admissions, a favorable payer mix and increased Medicaid supplemental revenues. Additionally, lower operating expenses, strategic facility acquisitions and service line expansions within its Ambulatory Care unit contributed to the results, highlighting Tenet’s operational efficiency and effective management.

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The company’s deleveraging efforts are yielding results. Tenet ended the fourth quarter with $3 billion in cash and cash equivalents, more than double its 2023 year-end balance. Meanwhile, long-term debt (net of the current portion) declined 12.1% to $13.1 billion, with only $92 million classified as the current portion, keeping near-term obligations manageable.

As a result of these efforts, Tenet’s net debt-to-EBITDA ratio has improved to 2.61X, well below its five-year median of 4.64X and the industry average of 3.24X. For 2025, the company forecasts adjusted EBITDA between $3.975 billion and $4.175 billion, with the midpoint indicating 2% year-over-year growth. It also expects an adjusted EBITDA margin in the range of 19.3-19.9%. To further strengthen its financial position, Tenet is likely to continue divesting non-core and underperforming assets, allowing for additional debt reduction and capital reinvestment.

Tenet Healthcare is strengthening its focus on ambulatory surgery centers (ASCs) to tap into the growing demand for outpatient services. Through its partnership with United Surgical Partners International (USPI), the company is expanding its network, optimizing operations, and enhancing profitability. By the end of the fourth quarter, USPI held stakes in 518 ASCs and 25 surgical hospitals across 37 states.

Additionally, Tenet is investing in AI-driven technologies to streamline both clinical and administrative processes. These innovations aim to reduce costs, shorten patient wait times and improve overall patient satisfaction, further reinforcing the company’s commitment to efficiency and quality care.

THC’s Earnings Estimates & Surprise History

The Zacks Consensus Estimate for 2025 adjusted earnings for THC is currently pegged at $11.84 per share, which witnessed five upward estimate revisions in the past 30 days against one movement in the opposite direction. The consensus mark for 2026 EPS indicates 13.6% further growth. The consensus estimate for 2025 and 2026 revenues suggests 0.9% and 5.5% year-over-year growth, respectively.

It beat earnings estimates in each of the past four quarters, with an average surprise of 46.9%.

Should You Buy Tenet Healthcare Stock Now?

While the above-mentioned factors are working in its favor, investors should also be mindful of some potential risks. The broader hospital industry faces ongoing challenges, including the new administration’s focus on reducing government spending, which could impact hospital profits.

Additionally, uncertainties surrounding reduced hospital funding and the expiration of insurance subsidies add further uncertainty to the sector. THC’s supply expenses increased by nearly 10% in 2023 and 1.6% in 2024. As hospital occupancy levels grow and resource utilization rises, operating costs could face upward pressure.

That said, Tenet Healthcare’s solid financial performance, cheaper valuation and growth potential make it an attractive investment opportunity now. The stock is currently trading well below Wall Street’s average price target of $174.83, implying a 32.7% upside from current levels.

THC Wall Street Price Target

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Also, improving labor market conditions moderating cost growth and higher patient admissions boosting performances are expected to provide additional support for the stock’s growth. The favorable estimates suggest a promising outlook ahead.

Tenet Healthcare currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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