Hospital and ambulatory care operator Tenet Healthcare Co. (NYSE: THC) is operating in the sweet spot of healthcare these days. That sweet spot is acute care services, which include emergency departments, inpatient hospitalizations, and ambulatory care. The company had the foresight to focus its concentration on acute care and is riding the unforeseen acute care boom.

This phenomenon was exposed in 2023 when Humana Inc. (NYSE: HUM) issued a shocking deep earnings warning extending out into 2026, citing the unexpected rise of inpatient utilization for its Medicare Advantage plan members. What’s bad for health insurers is often good for healthcare providers, as evidenced by the strength of hospital stocks versus underperforming health insurance stocks. Tenet Healthcare stock is trading up 87.5% year-to-date (YTD) but still trades at just 13.27x forward earnings compared to HCA Healthcare, trading at 15.89x forward earnings.

Tenet Healthcare operates in the medical sector, competing with healthcare providers like HCA Healthcare Inc. (NYSE: HCA), Community Health Systems Inc. (NYSE: CYH), and Universal Health Services Inc. (NYSE: UHS).

Tenet Healthcare’s Tactical Bet on Acute Care Was Brilliant

Tenet Healthcare's pivot to focus on acute surgery centers and acute care hospital expansion was a tactical success. During the pandemic, hospital procedures were put on hold as emergency rooms filled up with COVID-19 cases. Procedure rates have been normalized positively since the reopening. Management also took the initiative to sell off 9 underperforming hospitals to generate $4 billion in proceeds, which was used to pay down the bulk of its debt and improve the balance sheet by reducing leverage ratios. This cleared the runway to deploy capital free of major debt maturities until 2027.

THC Stocks Triggers a Bull Flag Breakout and Gap Fill

The daily candlestick chart for THC illustrates a bull flag breakout pattern. This pattern formed after the flagpole peaked at $142.35, and parallel upper and lower trendlines formed, representing lower highs and lower lows. The bull flag triggered the Q2 2024 EPS reactions as shares gapped up to $144.04 from $140.05, which are gap-fill levels. THC spiked as high as $155.00 before reversion formed a gap-fill pullback to $140.05. The daily relative strength index (RSI) has fallen to the 52-band. Pullback support levels are at $136.30, $128.49, $121.17, and $112.13.

Tenet Healthcare Knocks It Out of the Park

On July 24, 2024, Tenet Healthcare reported Q2 2024 EPS of $2.31, beating consensus estimates for $1.90 by 41 cents. Revenues rose 0.4% YoY to $5.1 billion, beating $4.99 billion consensus estimates. Same-hospital admission growth rose 5.2% YoY. The company authorized a $1.5 billion stock buyback program.

Its United Surgical Partners International subsidiary specializes in ambulatory surgical centers (ASCs). Adjusted hospital EBITDA margins were 12.6%. Ambulatory same-facility revenue growth rose 7.1% YoY. Net revenue per case grew 6.8% YoY. Adjusted EBITDA margin was 39.2%. Tenet Healthcare added 11 centers in Q2 2024. Tenet spent $61 million to acquire six new ambulatory centers.

Tenet's Year-to-Date Financial Performance in 2024

Net interest expense was $63 million, down from $67 million in the year-ago period. The year-to-date (YTD) operating profit was $1.5 billion, which included $235 million in costs related to the transformation initiative. YTD adjusted operating profit was $1.7 billion, up 15% from $1.5 billion in 2023. YTD cash provided by operations was $1.5 billion, up from $1.4 billion a year ago. Fundamentals continue to shape up as the company took the opportunity to raise its 2024 outlook.

Tenet Healthcare Raises Forecasts

Tenet raised its Q3 2024 EPS to $2.16 to $2.58 versus $1.67 consensus estimates. Revenues are expected to be between $5 billion and $5.10 billion versus the consensus estimates of $4.89 billion. Full-year 2024 EPS is expected between $10.41 and $11.12 versus $8.81 consensus estimates. Full-year 2024 revenues are expected between $20.6 billion and $21 billion versus $20.39 billion consensus analyst estimates.

Tenet Healthcare CEO Saum Sutaria commented, "Our results through the second quarter, which have significantly exceeded our expectations, have been driven by volume and revenue growth as well as sustained fundamentally strong operating performance.”

Tenet Healthcare analyst ratings and price targets are at MarketBeat. There are 17 analyst ratings on THC stock, comprised of two Strong Buys, 14 Buys, and one Hold, with a 5.64% upside to the average consensus price target of $149.75.