On Monday, Tenet Healthcare Corporation (NYSE:THC), currently trading at $136.71 with a market capitalization of $13 billion, experienced a shift in its stock outlook as Goldman Sachs downgraded the company's rating from Buy to Neutral. Accompanying this change, the firm also reduced Tenet's price target to $140.00 from $196.00.
The downgrade stems from increasing concerns about policy risks that are expected to keep the stock range-bound until there is more clarity regarding policy outcomes.
The analyst from Goldman Sachs pointed out that while Tenet's valuation has decreased from a peak of 8.6x next twelve months' (NTM) EBITDA on May 14, 2024, to the current 6.5x, historical trends during periods of uncertainty suggest there could be further downside. According to InvestingPro, Tenet currently trades at a P/E ratio of 4.3x and maintains a "GREAT" overall Financial Health Score of 3.51.
The lack of a clear stance on any specific policy outcome means that the potential impact on EBITDA from changes to Medicaid or the Affordable Care Act (ACA) over the coming year has not been factored into their models.
Despite the downgrade, it's notable that since Tenet Healthcare was added to Goldman Sachs' Buy List on March 1, 2022, the company's shares have seen a significant increase, rising by 54%. This performance is compared to a 41% increase in the S&P 500 over the same period. The analyst's comments reflect a cautious approach due to the potential for multiple sources of downside to the company's estimates for the year 2026 and beyond.
Goldman Sachs' decision to adjust Tenet's stock rating and price target is based on the assessment of the current market conditions and the potential impact of healthcare policy changes. The firm maintains a neutral position as it awaits more definitive policy outcomes that could influence the company's valuation and future earnings estimates.
In other recent news, Tenet Healthcare has been in the spotlight following a series of significant developments. The company demonstrated a robust financial performance in Q3 2024, posting net operating revenues of $5.1 billion and an adjusted EBITDA of $978 million, marking a 15% growth from the previous year.
Despite a decrease in revenue expectations due to the sale of Alabama hospitals, Tenet Healthcare raised its full-year 2024 guidance for adjusted EBITDA to between $3.9 billion and $4 billion.
Simultaneously, Wells Fargo (NYSE:WFC) revised its stance on Tenet Healthcare from an "Overweight" to an "Equal Weight" rating, accompanied by a reduction in the price target to $150 from $205. This adjustment reflects a reassessment of the healthcare company's future earnings and a more cautious outlook due to policy uncertainties.
Furthermore, Tenet Healthcare's USPI segment saw a 19% rise in adjusted EBITDA to $439 million, attributed to strong orthopedic procedure performance and new facility openings. The Hospital segment also experienced an 11% increase in adjusted EBITDA at $539 million, with same-store admissions up by 5.2%. These recent developments underline Tenet Healthcare's focus on portfolio transformation and operational efficiencies.
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