Tenet's Expansion Into Higher-Acuity Services Supports Margin Growth

Since late 2017, Tenet Healthcare has undergone a massive turnaround effort in the wake of an acquisition strategy that left it with operating inefficiencies and a debt-heavy balance sheet. In recent years, Tenet’s new leadership has improved governance practices, pruned its portfolio of assets through divestitures of hospitals, and undergone a restructuring effort. Operationally, Tenet has been expanding its high-acuity service lines in outpatient settings, improving operating efficiencies both inside and outside its healthcare facilities, and increasing focus on service quality. All these factors appear to be positively influencing ROICs at Tenet, which began exceeding its weighted average cost of capital in 2017 by our calculations for the first time since The Vanguard Group acquisition in 2013. We applaud those trends. We also like the firm's increasing focus on the high-margin ambulatory surgery business, and we believe Tenet is on track to reach its goal of opening 575-600 ambulatory surgery centers by the end of 2025.