Tenet Healthcare (NYSE:THC) shares are trading at $255.62, reflecting a 271% return for shareholders since October 2021. This performance has significantly outpaced the S&P 500, which gained 76% over the same period, and the hospital operator is up 34.3% in the last six months on the back of solid quarterly results.
The company operates a nationwide network of hospitals, ambulatory surgery centers, and outpatient facilities spanning nine states. Its services focus primarily on urban and suburban communities, providing acute care and specialty healthcare.
Investors analyzing the stock's long-term trajectory point to earnings per share (EPS) growth as a key indicator of profitable expansion. Over the last five years, Tenet Healthcare's EPS grew at an 18.6% compounded annual growth rate. This rate exceeds the company's 2.6% annualized revenue growth, suggesting that the business has become more profitable on a per-share basis as it expanded.
Free cash flow metrics further support this view of improving unit economics. Tenet Healthcare's free cash flow margin expanded by 11.7 percentage points over the last five years. The trailing 12-month free cash flow margin stands at 13.9%. Analysts note that free cash flow is a difficult metric to manipulate because it accounts for all operating and capital expenses. The rise in free cash flow profitability outpaced operating profitability, indicating that Tenet Healthcare has become a less capital-intensive business.
However, underlying demand indicators present a mixed picture. Same-store sales, which measure the change in sales at locations that have existed for at least a year, averaged just 1.7% year-on-year growth over the last two years. This performance is considered underwhelming by some observers, who suggest it could force the company to alter its strategy or pricing. Such changes carry the risk of disrupting operations.
Despite these concerns regarding demand growth, the positive characteristics of Tenet Healthcare's financial profile appear to outweigh the negatives for many market participants.