Bull of the Day: Tenet Healthcare (THC)

With September historically ranking as the weakest month for U.S. stocks on average and geopolitical tensions surrounding the war in Iran still running high, investors may want to consider more defensive areas of the market such as healthcare.

In that regard, Tenet Healthcare THC) stands out with a Zacks Rank #1 (Strong Buy) and an overall “A” VGM Zacks Style Scores grade for Value, Growth, and Momentum.

Tenet is one of the nation’s largest healthcare services companies, operating acute-care and specialty hospitals, outpatient facilities, physician networks, and United Surgical Partners International (USPI), the country’s largest ambulatory surgery platform.

Tenet also owns Conifer Health Solutions, which provides revenue-cycle management and value-based care services to hospitals and other healthcare providers.

EPS Revisions Keep Rising After Tenet’s Strong Q2 Results

Tenet’s bullish outlook gained significant momentum after the company crushed Q2 expectations in July, posting net income of $826 million and adjusted EPS of $6.12 versus the $4.08 Zacks Consensus, representing a massive 50% earnings surprise.

EPS jumped 52% year over year, while Q2 revenue increased nearly 7% to $5.62 billion and comfortably topped estimates of $5.39 billion.

Strong same-facility revenue growth, higher-acuity procedures, and disciplined expense management helped adjusted EBITDA rise 16% to $1.3 billion.

Notably, Tenant has surpassed earnings expectations for a remarkable 26 consecutive quarters and has posted a very impressive average EPS surprise of 22.7% in its last four quarterly reports.

The strong Q2 results led to Tenet lifting its fiscal 2026 adjusted EPS outlook to a range of $20.30-$21.69 (+20% YoY growth) and raising adjusted EBITDA guidance to $4.83-$5.03 billion (+5% growth).

Most encouraging is the response from analysts. Over the last 60 days, the Zacks Consensus for full-year EPS has surged nearly 17%, from $17.61 to $20.60 per share, while the next-year estimate has jumped more than 15%, from $17.63 to $20.30. EPS estimates for Tenet’s next two quarters have climbed over 6% and 14%, respectively. 

THC's Attractive Valuation

Despite an improved earnings outlook, THC stock remains reasonably valued at 12.6X forward earnings. That's less than half the 25X forward P/E of the broader Zacks Medical Sector and essentially in line with Tenet's decade-long median of about 12.5X.

That combination is particularly compelling: investors aren't being asked to pay an excessive premium for a company that just delivered a 50% EPS surprise, raised its outlook and is seeing double-digit upward revisions to annual earnings estimates.

THC’s Stellar Price Performance

Magnifying THC’s compelling growth story and reasonable valuation, shares are up 36% year to date and more than 250% over the last five years, with a staggering decade return of over 1,000% that has far outpaced the medical sector, S&P 500, and even the Nasdaq.

Bottom Line

Tenet Healthcare offers an appealing combination of defensive healthcare exposure, improving operating fundamentals, surging earnings estimates, and a modest valuation. Its expanding ambulatory surgery platform and improving hospital profitability provide additional catalysts.

With THC currently sporting a Zacks Rank #1 (Strong Buy) along with an “A” VGM Zacks Style Scores grade, Tenet looks like a compelling healthcare stock to consider as investors navigate what could be a more volatile September.

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This article originally published on Zacks Investment Research (zacks.com).

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