Pgiam/iStock via Getty Images Investment Summary Since my last publication on Tenet Healthcare Corporation ( NYSE: THC ) shares have caught a tremendous bid and now trade nearly 180% to the upside (Figure 1). The key catalyst to the repricing has been management's divestiture of lazy assets within the company's surgery centres portfolio. This has unlocked substantial capital on the balance sheet and provided it with new funds to deploy in high-return opportunities.
Of course, this does not come without risk – it is now one of execution on management's part. Previously I had been fairly neutral on THC given 1) the lack of reinvestment runway to deploy its operating profits, and 2) the bulk of its revenues originating from surgery centres [~50% throughout FY 2023]. Fast forward to the present, management has sold off various hospital assets to (i) unlock capital, plus (ii) shed underperforming assets from the balance sheet and increase marginal returns on capital in the business.
I am now constructive on the valuation prospects THC given 1) the new operating structure, 2) management's revised focus on the higher revenue, higher margin acute surgery centre segment, and 3) the potential for multiples expansion given the stock trades at roughly 6x trailing post-tax earnings as I write today. Investors seem to have noticed the warranted jump in intrinsic value and have repriced the company accordingly (Figure 1). According to my implied intrinsic valuation model, the jump in mark.
