Tenet Healthcare (THC)

Hospital operator Tenet Healthcare (NYSE:THC) reported revenue ahead of Wall Street’s expectations in Q3 CY2025, with sales up 3.3% year on year to $5.29 billion. The company expects the full year’s revenue to be around $21.25 billion, close to analysts’ estimates. Its non-GAAP profit of $3.70 per share was 10.5% above analysts’ consensus estimates.

Company Overview

With a network spanning nine states and serving primarily urban and suburban communities, Tenet Healthcare (NYSE:THC) operates a nationwide network of hospitals, ambulatory surgery centers, and outpatient facilities providing acute care and specialty healthcare services.

Hospital chains operate scale-driven businesses that rely on patient volumes, efficient operations, and favorable payer contracts to drive revenue and profitability. These organizations benefit from the essential nature of their services, which ensures consistent demand, particularly as populations age and chronic diseases become more prevalent. However, profitability can be pressured by rising labor costs, regulatory requirements, and the challenges of balancing care quality with cost efficiency. Dependence on government and private insurance reimbursements also introduces financial uncertainty. Looking ahead, hospital chains stand to benefit from tailwinds such as increasing healthcare utilization driven by an aging population that generally has higher incidents of disease. AI can also be a tailwind in areas such as predictive analytics for more personalized treatment and efficiency (intake, staffing, resourcing allocation). However, the sector faces potential headwinds such as labor shortages that could push up wages as well as substantial investments needs for digital infrastructure to support telehealth and electronic health records. Regulatory scrutiny, and reimbursement cuts are also looming topics that could further strain margins.

Tenet Healthcare's main competitors include HCA Healthcare (NYSE:HCA), Community Health Systems (NYSE:CYH), Universal Health Services (NYSE:UHS), and Surgery Partners (NASDAQ:SGRY) in the hospital and ambulatory surgery center space.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $20.86 billion in revenue over the past 12 months, Tenet Healthcare has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Tenet Healthcare’s 3.5% annualized revenue growth over the last five years was tepid. This wasn’t a great result compared to the rest of the healthcare sector, but there are still things to like about Tenet Healthcare.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Tenet Healthcare’s recent performance shows its demand has slowed as its annualized revenue growth of 1.7% over the last two years was below its five-year trend.

Tenet Healthcare also reports same-store sales, which show how much revenue its established locations generate. Over the last two years, Tenet Healthcare’s same-store sales averaged 1.9% year-on-year growth. This number doesn’t surprise us as it’s in line with its revenue growth.

This quarter, Tenet Healthcare reported modest year-on-year revenue growth of 3.3% but beat Wall Street’s estimates by 0.6%.

Looking ahead, sell-side analysts expect revenue to grow 4.4% over the next 12 months. While this projection suggests its newer products and services will spur better top-line performance, it is still below average for the sector. At least the company is tracking well in other measures of financial health.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Tenet Healthcare has managed its cost base well over the last five years. It demonstrated solid profitability for a healthcare business, producing an average operating margin of 17.1%.

Analyzing the trend in its profitability, Tenet Healthcare’s operating margin rose by 1.1 percentage points over the last five years, as its sales growth gave it operating leverage. This performance was mostly driven by its recent improvements as the company’s margin has increased by 5.2 percentage points on a two-year basis.

This quarter, Tenet Healthcare generated an operating margin profit margin of 16.8%, down 4.5 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Tenet Healthcare’s EPS grew at an astounding 30.1% compounded annual growth rate over the last five years, higher than its 3.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Tenet Healthcare’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Tenet Healthcare’s operating margin declined this quarter but expanded by 1.1 percentage points over the last five years. Its share count also shrank by 15.8%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q3, Tenet Healthcare reported adjusted EPS of $3.70, up from $2.92 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Tenet Healthcare’s full-year EPS of $15.52 to grow 3.1%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Tenet Healthcare has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 6.4% over the last five years, slightly better than the broader healthcare sector.

Taking a step back, we can see that Tenet Healthcare’s margin expanded by 1.6 percentage points during that time. This is encouraging because it gives the company more optionality.

Tenet Healthcare’s free cash flow clocked in at $829 million in Q3, equivalent to a 15.7% margin. This cash profitability was in line with the comparable period last year and above its five-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Tenet Healthcare’s five-year average ROIC was 22.4%, placing it among the best healthcare companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Tenet Healthcare’s ROIC has increased significantly. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

Tenet Healthcare reported $2.98 billion of cash and $13.19 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $4.43 billion of EBITDA over the last 12 months, we view Tenet Healthcare’s 2.3× net-debt-to-EBITDA ratio as safe. We also see its $407 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Tenet Healthcare beat analysts’ EPS expectations this quarter. We were also happy its full-year EPS guidance outperformed Wall Street’s estimates. On the other hand, its same-store sales was in line. Overall, this print had some key positives. The market seemed to be hoping for more, and the stock traded down 3.3% to $208.99 immediately following the results.

Updated: December 3, 2025 at 11:09 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Tenet Healthcare.

There are a lot of things to like about Tenet Healthcare. Although its revenue growth was uninspiring over the last five years, its growth over the next 12 months is expected to be higher. And while Tenet Healthcare’s same-store sales growth has disappointed, its astounding EPS growth over the last five years shows its profits are trickling down to shareholders. On top of that, its rising returns show management's prior bets are paying off.

Tenet Healthcare’s P/E ratio based on the next 12 months is 13.2x. Looking at the healthcare landscape right now, Tenet Healthcare trades at a pretty interesting price. If you’re a fan of the business and management team, now is a good time to scoop up some shares.

Wall Street analysts have a consensus one-year price target of $233.43 on the company (compared to the current share price of $211.42), implying they see 10.4% upside in buying Tenet Healthcare in the short term.