Yahoo Finance ACHC or THC: Which Hospital Stock is Better-Positioned?
The U.S. hospital industry continues to benefit on the back of improved patient volumes coupled with an expanding healthcare services suite resulting from pursuit of an active merger and acquisition ("M&A") strategy. The industry participants also resort to significant technology investments in order to upgrade operational efficiencies.
Revenues of players in the hospital industry seem to benefit from a growing patient base resulting from rebounding outpatient and emergency room visits. Needless to say, admissions remain the most significant contributor to any hospital stock’s revenues.
As the ill effects of the pandemic have receded to a great extent, individuals no longer remain apprehensive to opt for an outpatient visit. Since the burden on the nation’s healthcare system to treat an alarmingly growing number of COVID patients has significantly reduced, hospitals can direct their resources and expertise to conduct uninterrupted surgical procedures.
An aging U.S. population, belonging to a vulnerable group, is likely to sustain the solid demand for hospital services in the days ahead. Hospital stocks extending rehabilitation care are expected to gain from the dire need for upgraded rehabilitation care that enables patients to resume their normal daily activities and improve their quality of life after suffering from an injury, illness, or surgery.
The industry participants remain active on the M&A front, that enables them to add facilities and beds to their existing network, bolster business scale and expand geographical presence. Such growth-related initiatives also bring about diversification benefits, which are likely to sustain the competitive edge of hospital stocks. An exciting year awaits, with respect to M&A deals, according to PwC’s Global M&A Industry Trends: 2023 Outlook.
Additionally, players of the hospital industry resort to significant technology investments to stay abreast with the ongoing digitization trend. Such investments equip the industry participants to devise virtual solutions based on which patients can avail medical consultations within the comfort of one’s home. The investments are also meant to boost the functional efficiency of hospital systems and processes. However, such investments may escalate costs for hospitals but will fetch multiple benefits over the long term.
The prevailing scenario makes us optimistic regarding consistent growth in the hospital industry, which should bolster the prospects of companies with sound business fundamentals.
The Zacks Hospital industry, which is housed within the broader Medical sector, has gained 26.3% in the past six months compared with the sector’s 5% growth. The S&P Index rose 9.2% in the same time frame.
Image Source: Zacks Investment Research
Against this backdrop, let’s take a look at the two hospital stocks, Acadia Healthcare Company, Inc. ACHC and Tenet Healthcare Corporation THC, with market capitalizations of $6.6 billion and $6.1 billion, respectively. Both stocks carry a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let's delve deeper into specific parameters to ascertain which company is better positioned at the moment.
Price Performance
Though shares of both companies have underperformed the industry’s gain of 26.3% in the past six months, Tenet Healthcare has the edge over Acadia Healthcare on this front. While shares of THC gained 5.9% in the past six months, ACHC declined 13.4% in the same time frame.
Image Source: Zacks Investment Research
Earnings Surprise History
A stock’s earnings surprise track helps investors get an idea about its performance in the previous quarters.
Acadia Healthcare’s earnings surpassed the mark in two of the trailing four quarters, matched once and missed once, the average surprise being 2.51%. Meanwhile, Tenet Healthcare’s bottom line beat estimates in each of the trailing four quarters, the average surprise being 65.19%. It is clear that THC has a better reading than ACHC here.
Return on Equity (ROE)
ROE is a profitability measure, which indicates how efficiently the company is utilizing its shareholders' funds.
Tenet Healthcare’s ROE of 32.9% compares favorably with Acadia Healthcare’s ROE of 10.2% but remains significantly lower than the industry’s average.
Valuation
Price-to-earnings (P/E) value is the best multiple used for valuing healthcare stocks. Compared with ACHC’s forward 12-month P/E ratio of 21.1, THC is cheaper, with a reading of 10.9. The hospital industry’s P/E ratio is 15.
Debt-to-Equity Ratio
The lower the debt-to-equity ratio, the better it is for the company, as it implies a sound solvency level. Both stocks have a lower leverage ratio than the industry. Acadia Healthcare’s leverage ratio of 49.3X remains way lower than Tenet Healthcare’s ratio. Therefore, ACHC holds an edge over THC on this front.
Growth Projection
The expected long-term earnings growth rate of Acadia Healthcare is pegged at 14.2%, which is better than the Tenet Healthcare’s figure of 3.6% as well as the industry’s average of 13.4%.
VGM Score
VGM Score rates each stock on their combined weighted styles, helping to identify those with the most attractive value, best growth and the most promising momentum. Both Acadia Healthcare and Tenet Healthcare have an unimpressive VGM Score, faring equally on this front.
Admissions
The most vital component of a hospital’s revenues remains that of admissions. Total admissions of Acadia Healthcare dipped 1% year over year in 2022 but remained lower than the 4.5% year-over-year decline of Tenet Healthcare reported last year. Hence, ACHC wins this round.
Conclusion
Our comparative analysis shows that Tenet Healthcare is better-poised than Acadia Healthcare with respect to price performance, earnings surprise, return on equity and valuation. Meanwhile, ACHC scores higher in terms of debt-to-equity ratio, expected long-term earnings growth and admission figures. With the scale tilted marginally toward Tenet Healthcare, the stock definitely appears to be better poised.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Tenet Healthcare Corporation (THC) : Free Stock Analysis Report
Acadia Healthcare Company, Inc. (ACHC) : Free Stock Analysis Report
