Why Tenet Healthcare is on investors’ radar today

Tenet Healthcare (THC) has been drawing attention after a period of strong multi year total returns. The stock recently closed at $199.19, and investors are weighing how its current valuation lines up with fundamentals.

While the share price has eased in the very short term, with a 7 day share price return of a 4.35% decline to US$199.19, Tenet Healthcare’s 1 year total shareholder return of 56.07% and 3 year total shareholder return of 275.48% point to strong momentum that investors are now reassessing against current fundamentals.

If Tenet’s performance has you reviewing the sector, this could be a useful moment to scan other ideas across healthcare stocks and compare how different healthcare names stack up.

With Tenet Healthcare posting multi year total returns and trading around US$199.19, the real question now is whether the current price still leaves room for upside or if the market is already pricing in future growth?

Price-to-Earnings of 12.9x: Is it justified?

On a P/E of 12.9x at a last close of US$199.19, Tenet Healthcare screens as undervalued compared to both its own fair P/E estimate and sector peers.

The P/E multiple compares the company’s share price to its earnings per share, so it gives a quick sense of how much investors are currently paying for each dollar of profit. For a healthcare provider with an established earnings base, this is a commonly watched yardstick.

According to Simply Wall St’s fair ratio work, Tenet’s current P/E of 12.9x sits well below an estimated fair P/E of 22.7x. This points to a sizeable valuation gap if earnings are sustained. Tenet also carries a value score of 5 out of 6 and is assessed as trading at good value compared to peers and the broader US Healthcare industry.

The discount appears even clearer when Tenet is compared with peers and the wider industry. Its 12.9x P/E is markedly below the US Healthcare industry average of 23.3x and the peer average of 24.5x. This suggests the market is pricing Tenet’s earnings at a lower level than many comparable companies, while the fair P/E indicates potential for that gap to narrow over time.

Result: Price-to-Earnings of 12.9x (UNDERVALUED)

However, the story can change quickly if earnings soften or sector sentiment turns, especially given Tenet’s hospital exposure and reliance on consistent procedure volumes.

Another angle using the SWS DCF model

The P/E points to value, but the SWS DCF model paints an even starker picture. With Tenet Healthcare trading at US$199.19 against an estimated fair value of US$373.97, the shares are assessed as trading about 46.7% below that DCF based estimate. If both signals are pointing to value, what is the market still worried about?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Tenet Healthcare for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 886 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Tenet Healthcare Narrative

If you look at the numbers and reach a different conclusion, or simply prefer to test your own view, you can build a complete narrative in just a few minutes, starting with Do it your way.

A great starting point for your Tenet Healthcare research is our analysis highlighting 2 key rewards and 3 important warning signs that could impact your investment decision.

Looking for more investment ideas?

If Tenet has caught your eye, do not stop there. Use the same structured approach to hunt for other stocks that could fit your portfolio.

• Target potential value by checking out these 886 undervalued stocks based on cash flows that screen for companies where the market price sits well below their assessed cash flow potential.
• Ride the AI trend thoughtfully with these 25 AI penny stocks that focus on businesses plugged into artificial intelligence themes rather than short term hype.
• Boost your income focus by scanning these 13 dividend stocks with yields > 3% that highlight companies offering yields above 3% with the cash flows to support them.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.