Tenet Healthcare Corporation (NYSE:THC) is increasingly relying on its ambulatory business as an important driver of growth, combining favorable long-term outpatient trends with attractive margins. According to BMO Capital Markets, Tenet’s ambulatory operations give the company exposure to an end market with favorable long-term growth characteristics.
The firm expects continued investment in Tenet’s hospital operations to support organic growth and help offset broader macroeconomic pressures. BMO initiated coverage of Tenet on September 22 with a Market Perform rating and a $265 price target.
United Surgical Partners International (USPI), Tenet’s ambulatory platform, had interests in 538 ambulatory surgery centers as of June 30. The business also operated 26 surgical hospitals across 37 states. In the second quarter, ambulatory revenue increased 9.3% year over year to $1.39 billion, highlighting the segment’s continued contribution to Tenet’s overall growth.
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The segment’s profitability is also an important part of the investment thesis. Ambulatory EBITDA increased 8.8% in the second quarter, while adjusted EBITDA margin reached 39%. These results demonstrate the attractive economics of outpatient care and underscore how USPI is becoming an increasingly important component of Tenet’s business mix.
Risks to Tenet’s Ambulatory Growth
Despite the growth opportunity, Tenet Healthcare Corporation’s ambulatory business faces several risks that could affect the company’s long-term financial performance and valuation.
Tenet remains dependent on commercial insurers and government payers, making reimbursement policy an important consideration. Changes to Medicare payment rates or reimbursement policies could reduce the economic advantage associated with performing certain procedures in outpatient settings.
USPI’s business model also depends heavily on relationships with surgeons who bring procedures to its facilities. Competition from other ambulatory surgery center operators could make it more difficult to recruit and retain physicians. It could also increase the financial concessions required to maintain existing physician relationships.
Acquisitions represent another potential risk. Tenet has expanded USPI through acquisitions and partnerships, but strong investor interest in the ambulatory surgery center market could drive acquisition multiples higher. Paying elevated valuations for new facilities could make it more difficult for Tenet to generate attractive returns on invested capital.
Hedge Fund Positioning
Institutional investor activity provides another data point for investors watching Tenet Healthcare Corporation. According to Insider Monkey’s database, the number of hedge funds holding Tenet shares increased to 61 in the second quarter from 57 in the first quarter.
Several prominent funds also increased their positions. Glenview Capital increased its Tenet stake by 47% to approximately $418.25 million, while Citadel Investment Group increased its position by 322% to approximately $330.30 million.
Short interest has also declined. The number of Tenet shares held short fell to 2.02 million as of September 15, from 2.52 million as of August 14. Short interest stood at approximately 2.50% of shares outstanding, indicating relatively limited short positioning around the stock.
The Verdict
Tenet Healthcare Corporation’s expanding ambulatory platform has become an increasingly important part of its growth profile. USPI combines exposure to the continued migration of procedures toward outpatient settings with a relatively high-margin business model, while its scale offers opportunities to expand through partnerships and acquisitions.
At the same time, investors need to monitor reimbursement changes, physician relationships, competitive pressures, and acquisition valuations. These factors could influence how effectively Tenet converts ambulatory growth into sustainable earnings and cash flow.
The combination of ambulatory expansion, improving hedge fund participation, and declining short interest provides important context for investors assessing Tenet’s growth outlook.
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