THC Q3 Deep Dive: Outperformance in Ambulatory and Hospital Segments, Margin Pressures Linger

Hospital operator Tenet Healthcare (NYSE:THC) reported Q3 CY2025 results exceeding the market’s revenue expectations, 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.

Is now the time to buy THC? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Tenet Healthcare’s third quarter results were met with a negative market reaction, despite the company delivering revenue and non-GAAP profit above Wall Street’s expectations. Management highlighted strong performance in both ambulatory surgical centers and hospitals, citing increased same-store growth, high patient acuity, and effective cost controls as key contributors. CEO Saum Sutaria specifically pointed to robust M&A activity and the addition of new facilities, as well as continued improvements in cash collections and operational efficiency. However, investors appeared cautious, reflecting ongoing concerns around operating margins and sector-specific headwinds.

Looking forward, Tenet Healthcare’s updated guidance is underpinned by continued investment in high-acuity service lines, expansion of ambulatory surgical centers, and disciplined cost management. Management is focused on capital allocation toward strategic growth opportunities, with additional spending planned for hospital infrastructure and technology upgrades. CFO Sun Park emphasized that the outlook assumes a stable labor environment and continued optimization of supply sourcing, but acknowledged that uncertainties remain around government reimbursement, tariffs, and regulatory changes that could impact margin sustainability in the coming year.

Key Insights from Management’s Remarks

Management attributed Q3 performance to strong growth at USPI, operational efficiencies, and targeted investments in high-demand facilities.

• Ambulatory growth outpaces hospitals: Tenet’s ambulatory surgical platform, USPI, delivered double-digit EBITDA growth and outperformed hospitals in same-facility revenue gains, driven by high-acuity procedures such as orthopedics and spine. CEO Saum Sutaria highlighted ongoing M&A and new center openings as central to the segment’s momentum.
• Hospital segment leverages high acuity focus: Hospital results benefited from increased revenue per admission and a favorable payer mix, aided by investment in specialized care capabilities like advanced cardiac and surgical programs. The new Port St. Lucie hospital exemplifies the emphasis on expanding in growth markets with advanced technology.
• Operational discipline supports margins: Effective labor and capacity management reduced contract labor expenses as a share of revenue, while data-driven cost controls contributed to a sustained improvement in operating margins. Management noted that ongoing business transformation and automation initiatives are expected to drive additional efficiencies.
• M&A and de novo pipeline robust: Tenet’s acquisition and development activity in the ambulatory space remained strong, exceeding initial spend targets for the year. Sutaria credited a broader deal pipeline and success in competitive acquisition processes for the increased investment.
• Cash flow conversion remains a priority: The company reported significant free cash flow growth, underpinned by improved cash collections through Conifer and disciplined working capital management. Management indicated that this focus on cash conversion is expected to remain central to capital allocation and debt reduction strategies.

Drivers of Future Performance

Management expects further growth to be driven by ongoing expansion in ambulatory care, high-acuity hospital services, and disciplined cost control, balanced against regulatory and reimbursement uncertainties.

• Ambulatory expansion and investment: Tenet plans to continue expanding its ambulatory surgical platform through acquisitions and organic growth, with a focus on higher-margin, high-acuity procedures. Management believes that this segment’s lower exposure to government reimbursement risk will help sustain profitability.
• Hospital growth and capital deployment: The company is allocating additional capital to hospital infrastructure and service line enhancements, particularly in specialties such as cardiac and intensive care. Management expects these investments to support long-term patient demand and competitive positioning, but recognizes that future results depend on stable reimbursement environments and regulatory clarity.
• Cost management and external risks: While operational efficiencies and automation are expected to drive margin improvement, management flagged potential risks from inflation, labor costs, and tariffs. Uncertainties regarding state-directed payments and government policy changes—such as premium tax subsidies and the inpatient-only rule—could also impact financial performance in the coming year.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory analyst team will focus on (1) tracking the pace of new ambulatory center openings and integration of acquired facilities, (2) monitoring the impact of increased hospital capital investments on patient volumes and service mix, and (3) assessing the sustainability of margin improvements amid labor and supply chain pressures. Regulatory developments affecting reimbursement, including potential changes to premium subsidies and state payment programs, will also be key areas of attention.

Tenet Healthcare currently trades at $210.39, down from $216.02 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).

Stocks That Trumped Tariffs

Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.

Take advantage of the rebound by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.