Tenet Healthcare Corporation (NYSE:THC) is outperforming the broader market this year, with shares gaining nearly 38% since the start of the year. This rally makes the company’s current valuation more important for current and prospective investors.
Yahoo Finance lists Tenet’s forward P/E at 12.53x, and Tenet’s own 2026 guidance calls for adjusted diluted EPS of $20.30 to $21.69. Using the midpoint of $21.00 and the October 3 share price produces a forward multiple of about 12.3x, which is broadly consistent with Yahoo Finance’s figure. But before we dive into THC’s investment story, we ranked the ten best healthcare stocks to buy according to hedge funds. Check out the complete list here to get better insight into the sector.
Earnings Growth Is Supporting the Multiple
Tenet’s recent operating performance gives investors a reason to accept that valuation. In the second quarter, adjusted diluted EPS increased 52.2% to $6.12, while consolidated adjusted EBITDA rose 16.3% to $1.304 billion. The company’s adjusted EBITDA margin also expanded to 23.2%, while its fiscal Q2 2026 consolidated adjusted EBITDA well exceeded the high end of the company’s second quarter guidance range of 24-25% of its previous full year.
Management subsequently raised its 2026 adjusted EBITDA outlook to $4.83 billion-$5.03 billion, marking a $295 million increase at the midpoint of the range. Meanwhile, adjusted free cash flow is expected to reach $2.725 billion-$3.025 billion, which translates to a $225 million increase. That cash-generation outlook is particularly relevant after the stock’s rally because it provides another measure of whether higher earnings are translating into financial flexibility. We analyzed THC’s bull and bear case in depth in Tenet Healthcare’s (THC) Turnaround Is Working, but Can Its Growth Last?. Read the full analysis here.
Ambulatory Care Remains a Key Growth Driver
One of Tenet’s most important long-term advantages is its growing ambulatory platform through United Surgical Partners International. As of June 30, USPI had interests in 538 ambulatory surgery centers and 26 surgical hospitals across 37 states. Ambulatory care adjusted EBITDA reached $542 million in fiscal Q2, reflecting a growth of 8.8% over the prior-year period.
There is, however, an important caveat. Same-facility system-wide surgical cases declined 1.2% in the quarter, while same-facility system-wide net patient service revenue per case increased 6.3%. Tenet attributed the latter to higher acuity and a favorable service mix. That means some of the recent revenue growth is coming from the economics of each procedure rather than simply from higher procedure volumes. Learn more about how Tenet compares with other popular stocks in the sector through our insightful article on Medtronic vs. Tenet Healthcare: Which Healthcare Stock Offers Better Long-Term Growth?
Is 12.5x Earnings Still Attractive?
The hospital business is also improving for the company. It reported that hospital adjusted EBITDA increased 22.3% to $762 million, while its margin expanded to 18.0% from 15.6%. Still, Tenet Healthcare Corporation (NYSE:THC) noted unfavorable payer mix as a headwind, showing that the improvement is not entirely risk-free.
Also read: 7 Best Pharma Stocks to Invest In Now. Access the complete list here.
The bigger valuation concern is that the stock has already captured part of this improvement. At roughly 12.5x forward earnings, Tenet is no longer priced like a deeply discounted turnaround, but it also does not appear to be demanding a valuation that requires flawless execution. If the company can sustain hospital margin expansion, grow its ambulatory network, and convert those improvements into substantial free cash flow, the current multiple looks reasonably supported.
The key question is therefore less about whether Tenet has improved, since its results suggest that it has, and more about how much additional earnings growth the market is already pricing in after a 27% one-year gain.
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This article is originally published at Insider Monkey.
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