Tenet Healthcare's (THC) Q1 results exceeded expectations with adjusted earnings before interest, taxes, depreciation, and amortization coming in nearly 17% above the forecast due to strong volumes, improved payer mix and effective cost controls, RBC Capital Markets said in a note emailed Wednesday.
The firm said Tenet is its top hospital stock pick because of undervaluation relative to its peer HCA Healthcare (HCA).
The company is trading at nearly a 1.8x enterprise value multiple discount to HCA despite having comparable margins and leverage, and this valuation gap is unjustified, especially considering Tenet's improved balance sheet and stronger growth outlook, according to the note.
RBC said that though same-store cases in the ambulatory surgery center segment declined, revenue per case increased due to a strategic shift toward higher-acuity procedures.
The firm reaffirmed its outperform rating on Tenet's stock and raised the price target to $189 from $183.
Price: 140.77, Change: +2.42, Percent Change: +1.75
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