Aging US Population And Outpatient Trends Will Unlock Healthcare Opportunities

Key Takeaways

• Expansion in high-acuity outpatient services and strategic divestitures are strengthening portfolio quality, supporting durable demand and margin growth.
  
• Investments in ambulatory platforms, digital health, and cost control are driving efficiency and positioning the company for continued margin improvement.
  
• Migration of procedures to outpatient settings, high debt, labor shortages, value-based care adoption, and regulatory uncertainties threaten Tenet’s margins, flexibility, and revenue stability.

Catalysts

Operates as a diversified healthcare services company in the United States.

• Tenet is positioned to capture sustained volume growth and favorable procedure mix due to the aging U.S. population, with recent double-digit increases in high-acuity outpatient procedures like total joint replacements and strong hospital admission growth; this trend supports both top-line revenue expansion and durable demand for its services.
  
• Expanded insurance coverage, particularly strong growth in exchange admissions driving 35% admission increases year-over-year and exchange revenue now at 7% of the total, broadens Tenet’s addressable patient base and reduces uncompensated care, directly benefiting revenue growth and improving the quality of the payer mix, ultimately boosting operating margins.
  
• The company's ongoing investment and expansion in its United Surgical Partners International (USPI) ambulatory platform, with healthy M&A and de novo pipeline targeting high-acuity, high-margin service lines such as orthopedics, is shifting Tenet’s portfolio toward outpatient care; this shift enhances net margins as USPI delivers EBITDA margins near 38%, materially higher than legacy hospital operations.
  
• Tenet’s disciplined divestiture of non-core, lower-performing hospitals has resulted in a stronger portfolio with improved acuity, superior payer mix, and operational efficiency, which is translating into robust EBITDA growth, sustained operating margin expansion, and enhanced return on invested capital.
  
• Strategic investments in analytics, digital health, and systematic operating cost management—including industry-leading labor expense control and stable supply chain execution—continue to yield incremental improvements in cost structure quarter by quarter, setting the stage for further margin expansion and improved long-term earnings power.

Tenet Healthcare Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Tenet Healthcare compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Tenet Healthcare's revenue will grow by 4.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 7.1% today to 5.8% in 3 years time.
• The bullish analysts expect earnings to reach $1.4 billion (and earnings per share of $15.69) by about May 2028, down from $1.5 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 15.1x on those 2028 earnings, up from 10.1x today. This future PE is lower than the current PE for the US Healthcare industry at 21.1x.
• Analysts expect the number of shares outstanding to decline by 4.91% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.86%, as per the Simply Wall St company report.

Tenet Healthcare Future Earnings Per Share Growth

Risks

• The accelerating shift from inpatient hospital care to outpatient and ambulatory settings, driven by technological advancement and payer incentives, could erode Tenet’s core hospital-based revenue as more procedures migrate away from higher-margin inpatient environments.
  
• Continued high debt levels, even with recent deleveraging, may constrain Tenet’s financial flexibility, raising the risk during downturns or interest rate increases and potentially leading to higher interest expenses or reduced ability to invest in growth, ultimately pressuring net earnings.
  
• Persistent industry-wide labor shortages, especially among nurses and clinicians, are likely to raise wage costs for Tenet Healthcare over the long term, which could erode operating margins if wage inflation outpaces the company’s cost controls.
  
• Increased adoption of value-based care and alternative payment models at both public and private payers may introduce pressure on reimbursement rates and create downside risk to Tenet’s margins if they are unable to offset lower payments with corresponding cost reductions.
  
• Ongoing legal, regulatory, and policy uncertainty—such as potential changes to Medicare/Medicaid reimbursement and supplemental Medicaid program approval delays—could reduce revenue predictability and increase the risk of earnings volatility if government or payer reimbursement is cut or delayed.

Valuation

• The assumed bullish price target for Tenet Healthcare is $213.18, which represents two standard deviations above the consensus price target of $173.92. This valuation is based on what can be assumed as the expectations of Tenet Healthcare's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $230.0, and the most bearish reporting a price target of just $137.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $23.6 billion, earnings will come to $1.4 billion, and it would be trading on a PE ratio of 15.1x, assuming you use a discount rate of 6.9%.
• Given the current share price of $157.7, the bullish analyst price target of $213.18 is 26.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.