The stock market experienced a sharp downturn last week as recession fears grew after the unemployment rate rose above the “Sahm Rule” threshold, triggering a 7% drop in the S&P 500.

Despite the turbulence, Tenet Healthcare (THC) emerged as a strong performer due to its stable hospital operations, successful debt reduction through asset sales, and impressive earnings growth.

Tenet’s stock has surged 97% this year, and it remains attractively valued with a strengthened financial position, making it an appealing investment during market volatility.

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The stock market saw one of its worst days in years last week on Monday.

The Bureau of Labor Statistics announced the unemployment rate had risen to 4.3%, crossing above the “Sahm Rule” recession threshold.

The rule tracks the three-month rolling average unemployment rate. If that rolling average climbs 0.5 percentage points above its one-year low, it’s a sign that a downturn has started.

Sahm Rule, devised by former Fed economist Claudia Sahm, has accurately predicted every U.S. recession since World War II by tracking unemployment rate changes.

The jobs data triggered a sharp downturn in the market. Over the subsequent two days, the S&P 500 plummeted 7% as recession fears mounted.

There were only a few companies that didn’t take huge hits last Monday and one of them was Tenet Healthcare (THC).

Tenet operates acute care and specialty hospitals, which have historically maintained steady patient volumes and cash flows even during economic downturns or periods of uncertainty.

This provides a level of stability that investors value when broader markets experience turbulence.

The market had previously expressed concerns about Tenet’s debt load totaled close to $15 billion at the end of 2023. However, in 2024, the company executed an asset divestiture strategy to reduce leverage and strengthen its balance sheet.

Most notably, in April 2024, Tenet sold a majority stake at five hospitals in Birmingham, Alabama for $910 million. This helped the company to significantly deleverage its debt. The company’s leverage ratio went down from 3.9x in 2023 to 2.6x currently.

Furthermore, Tenet also managed to achieve impressive operating performance as well.

In the latest earnings, the company reported a 12% YoY increase in adjusted EBITDA, a 5.9% same-facility system-wide revenue CAGR from 2015 to 2024.

These asset sales, when combined with Tenet’s improving operating performance, resulted in its stock surging 97% since the start of the year.

The company still carries significant debt, but the market seems to view its strengthened financial position positively. Additionally, it has no significant maturities until 2027, giving it plenty of time to further improve operations.

Tenet appears attractively valued trading at only 11.6x Uniform P/E, well below the corporate average.

The company’s stable business model and improved balance sheet have made it an appealing investment option during a period of heightened volatility and uncertainty in markets.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research