Intrinsic value of Tenet Healthcare - THC

Previous Close

$14.45

  Intrinsic Value

$25.26

stock screener

  Rating & Target

str. buy

+75%

  Value-price divergence*

-21%

Previous close

$14.45

 
Intrinsic value

$25.26

 
Up/down potential

+75%

 
Rating

str. buy

 
Value-price divergence*

-21%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of THC stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  5.30
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  19,621
  20,013
  20,474
  21,000
  21,591
  22,245
  22,963
  23,745
  24,592
  25,504
  26,483
  27,530
  28,647
  29,837
  31,101
  32,443
  33,865
  35,370
  36,961
  38,643
  40,418
  42,292
  44,267
  46,350
  48,544
  50,855
  53,289
  55,850
  58,545
  61,380
  64,362
Variable operating expenses, $m
 
  16,676
  17,043
  17,462
  17,932
  18,453
  19,025
  19,648
  20,322
  21,048
  21,827
  21,918
  22,808
  23,755
  24,761
  25,830
  26,962
  28,160
  29,427
  30,766
  32,179
  33,671
  35,244
  36,902
  38,649
  40,489
  42,426
  44,465
  46,611
  48,868
  51,243
Fixed operating expenses, $m
 
  2,144
  2,198
  2,253
  2,309
  2,367
  2,426
  2,487
  2,549
  2,613
  2,678
  2,745
  2,814
  2,884
  2,956
  3,030
  3,106
  3,183
  3,263
  3,344
  3,428
  3,514
  3,602
  3,692
  3,784
  3,878
  3,975
  4,075
  4,177
  4,281
  4,388
Total operating expenses, $m
  18,402
  18,820
  19,241
  19,715
  20,241
  20,820
  21,451
  22,135
  22,871
  23,661
  24,505
  24,663
  25,622
  26,639
  27,717
  28,860
  30,068
  31,343
  32,690
  34,110
  35,607
  37,185
  38,846
  40,594
  42,433
  44,367
  46,401
  48,540
  50,788
  53,149
  55,631
Operating income, $m
  1,219
  1,193
  1,233
  1,285
  1,349
  1,425
  1,512
  1,611
  1,721
  1,844
  1,978
  2,867
  3,026
  3,198
  3,384
  3,583
  3,797
  4,027
  4,271
  4,533
  4,811
  5,107
  5,422
  5,757
  6,112
  6,488
  6,887
  7,310
  7,757
  8,231
  8,732
EBITDA, $m
  2,069
  2,439
  2,490
  2,556
  2,635
  2,727
  2,832
  2,951
  3,082
  3,228
  3,386
  3,559
  3,746
  3,949
  4,166
  4,399
  4,649
  4,916
  5,201
  5,504
  5,827
  6,171
  6,535
  6,922
  7,332
  7,767
  8,227
  8,714
  9,230
  9,774
  10,350
Interest expense (income), $m
  932
  961
  860
  893
  931
  973
  1,020
  1,071
  1,127
  1,187
  1,252
  1,322
  1,397
  1,477
  1,562
  1,652
  1,748
  1,849
  1,957
  2,071
  2,191
  2,317
  2,451
  2,592
  2,741
  2,898
  3,063
  3,237
  3,419
  3,612
  3,814
Earnings before tax, $m
  248
  232
  373
  392
  419
  452
  493
  540
  595
  656
  725
  1,545
  1,629
  1,721
  1,822
  1,931
  2,050
  2,177
  2,314
  2,462
  2,620
  2,790
  2,971
  3,164
  3,370
  3,590
  3,824
  4,073
  4,338
  4,619
  4,917
Tax expense, $m
  67
  63
  101
  106
  113
  122
  133
  146
  161
  177
  196
  417
  440
  465
  492
  521
  553
  588
  625
  665
  707
  753
  802
  854
  910
  969
  1,033
  1,100
  1,171
  1,247
  1,328
Net income, $m
  -192
  169
  272
  286
  306
  330
  360
  394
  434
  479
  530
  1,128
  1,189
  1,257
  1,330
  1,410
  1,496
  1,589
  1,690
  1,797
  1,913
  2,036
  2,169
  2,310
  2,460
  2,621
  2,792
  2,973
  3,167
  3,372
  3,590

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  716
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  24,701
  25,206
  25,786
  26,448
  27,192
  28,017
  28,921
  29,906
  30,972
  32,121
  33,354
  34,672
  36,080
  37,578
  39,170
  40,860
  42,651
  44,546
  46,550
  48,668
  50,905
  53,264
  55,752
  58,375
  61,139
  64,050
  67,114
  70,340
  73,734
  77,305
  81,061
Adjusted assets (=assets-cash), $m
  23,985
  25,206
  25,786
  26,448
  27,192
  28,017
  28,921
  29,906
  30,972
  32,121
  33,354
  34,672
  36,080
  37,578
  39,170
  40,860
  42,651
  44,546
  46,550
  48,668
  50,905
  53,264
  55,752
  58,375
  61,139
  64,050
  67,114
  70,340
  73,734
  77,305
  81,061
Revenue / Adjusted assets
  0.818
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
Average production assets, $m
  9,964
  10,167
  10,401
  10,668
  10,968
  11,301
  11,665
  12,063
  12,493
  12,956
  13,453
  13,985
  14,553
  15,157
  15,799
  16,481
  17,203
  17,968
  18,776
  19,630
  20,532
  21,484
  22,488
  23,546
  24,661
  25,835
  27,071
  28,372
  29,741
  31,181
  32,696
Working capital, $m
  1,223
  720
  737
  756
  777
  801
  827
  855
  885
  918
  953
  991
  1,031
  1,074
  1,120
  1,168
  1,219
  1,273
  1,331
  1,391
  1,455
  1,523
  1,594
  1,669
  1,748
  1,831
  1,918
  2,011
  2,108
  2,210
  2,317
Total debt, $m
  15,255
  13,656
  14,178
  14,774
  15,444
  16,186
  17,000
  17,886
  18,846
  19,880
  20,989
  22,176
  23,443
  24,791
  26,224
  27,745
  29,357
  31,062
  32,866
  34,773
  36,785
  38,909
  41,148
  43,509
  45,996
  48,616
  51,374
  54,277
  57,332
  60,545
  63,926
Total liabilities, $m
  24,284
  22,685
  23,207
  23,803
  24,473
  25,215
  26,029
  26,915
  27,875
  28,909
  30,018
  31,205
  32,472
  33,820
  35,253
  36,774
  38,386
  40,091
  41,895
  43,802
  45,814
  47,938
  50,177
  52,538
  55,025
  57,645
  60,403
  63,306
  66,361
  69,574
  72,955
Total equity, $m
  417
  2,521
  2,579
  2,645
  2,719
  2,802
  2,892
  2,991
  3,097
  3,212
  3,335
  3,467
  3,608
  3,758
  3,917
  4,086
  4,265
  4,455
  4,655
  4,867
  5,090
  5,326
  5,575
  5,838
  6,114
  6,405
  6,711
  7,034
  7,373
  7,730
  8,106
Total liabilities and equity, $m
  24,701
  25,206
  25,786
  26,448
  27,192
  28,017
  28,921
  29,906
  30,972
  32,121
  33,353
  34,672
  36,080
  37,578
  39,170
  40,860
  42,651
  44,546
  46,550
  48,669
  50,904
  53,264
  55,752
  58,376
  61,139
  64,050
  67,114
  70,340
  73,734
  77,304
  81,061
Debt-to-equity ratio
  36.583
  5.420
  5.500
  5.590
  5.680
  5.780
  5.880
  5.980
  6.080
  6.190
  6.290
  6.400
  6.500
  6.600
  6.690
  6.790
  6.880
  6.970
  7.060
  7.140
  7.230
  7.300
  7.380
  7.450
  7.520
  7.590
  7.650
  7.720
  7.780
  7.830
  7.890
Adjusted equity ratio
  -0.012
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -192
  169
  272
  286
  306
  330
  360
  394
  434
  479
  530
  1,128
  1,189
  1,257
  1,330
  1,410
  1,496
  1,589
  1,690
  1,797
  1,913
  2,036
  2,169
  2,310
  2,460
  2,621
  2,792
  2,973
  3,167
  3,372
  3,590
Depreciation, amort., depletion, $m
  850
  1,246
  1,257
  1,271
  1,285
  1,302
  1,320
  1,340
  1,361
  1,384
  1,409
  692
  720
  750
  782
  816
  852
  889
  930
  972
  1,016
  1,064
  1,113
  1,166
  1,221
  1,279
  1,340
  1,405
  1,472
  1,544
  1,619
Funds from operations, $m
  -1,839
  1,415
  1,529
  1,557
  1,591
  1,632
  1,680
  1,734
  1,795
  1,863
  1,938
  1,820
  1,910
  2,007
  2,112
  2,226
  2,348
  2,479
  2,619
  2,769
  2,929
  3,100
  3,282
  3,475
  3,681
  3,900
  4,132
  4,378
  4,639
  4,915
  5,208
Change in working capital, $m
  -2,397
  14
  17
  19
  21
  24
  26
  28
  30
  33
  35
  38
  40
  43
  46
  48
  51
  54
  57
  61
  64
  67
  71
  75
  79
  83
  88
  92
  97
  102
  107
Cash from operations, $m
  558
  1,401
  1,513
  1,538
  1,570
  1,608
  1,654
  1,706
  1,765
  1,830
  1,903
  1,782
  1,869
  1,964
  2,067
  2,177
  2,297
  2,425
  2,562
  2,709
  2,865
  3,033
  3,211
  3,401
  3,602
  3,817
  4,044
  4,286
  4,542
  4,813
  5,101
Maintenance CAPEX, $m
  0
  -493
  -503
  -515
  -528
  -543
  -559
  -577
  -597
  -618
  -641
  -666
  -692
  -720
  -750
  -782
  -816
  -852
  -889
  -930
  -972
  -1,016
  -1,064
  -1,113
  -1,166
  -1,221
  -1,279
  -1,340
  -1,405
  -1,472
  -1,544
New CAPEX, $m
  -875
  -203
  -234
  -267
  -300
  -333
  -365
  -397
  -430
  -463
  -497
  -532
  -568
  -604
  -642
  -682
  -722
  -765
  -808
  -854
  -902
  -952
  -1,004
  -1,058
  -1,115
  -1,174
  -1,236
  -1,301
  -1,369
  -1,440
  -1,515
Cash from investing activities, $m
  -430
  -696
  -737
  -782
  -828
  -876
  -924
  -974
  -1,027
  -1,081
  -1,138
  -1,198
  -1,260
  -1,324
  -1,392
  -1,464
  -1,538
  -1,617
  -1,697
  -1,784
  -1,874
  -1,968
  -2,068
  -2,171
  -2,281
  -2,395
  -2,515
  -2,641
  -2,774
  -2,912
  -3,059
Free cash flow, $m
  128
  704
  776
  756
  742
  733
  729
  731
  737
  748
  764
  584
  609
  639
  674
  714
  758
  808
  864
  925
  992
  1,064
  1,144
  1,229
  1,322
  1,422
  1,529
  1,645
  1,768
  1,901
  2,042
Issuance/(repayment) of debt, $m
  606
  -1,599
  522
  596
  670
  742
  814
  886
  960
  1,034
  1,109
  1,187
  1,266
  1,348
  1,433
  1,521
  1,612
  1,706
  1,804
  1,906
  2,013
  2,124
  2,240
  2,361
  2,487
  2,620
  2,758
  2,903
  3,055
  3,214
  3,380
Issuance/(repurchase) of shares, $m
  4
  1,934
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  232
  335
  522
  596
  670
  742
  814
  886
  960
  1,034
  1,109
  1,187
  1,266
  1,348
  1,433
  1,521
  1,612
  1,706
  1,804
  1,906
  2,013
  2,124
  2,240
  2,361
  2,487
  2,620
  2,758
  2,903
  3,055
  3,214
  3,380
Total cash flow (excl. dividends), $m
  360
  1,040
  1,297
  1,352
  1,411
  1,475
  1,544
  1,617
  1,697
  1,782
  1,874
  1,771
  1,876
  1,988
  2,107
  2,234
  2,370
  2,514
  2,668
  2,831
  3,004
  3,188
  3,383
  3,590
  3,809
  4,041
  4,287
  4,548
  4,823
  5,115
  5,423
Retained Cash Flow (-), $m
  274
  -2,104
  -58
  -66
  -74
  -82
  -90
  -98
  -107
  -115
  -123
  -132
  -141
  -150
  -159
  -169
  -179
  -190
  -200
  -212
  -224
  -236
  -249
  -262
  -276
  -291
  -306
  -323
  -339
  -357
  -376
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -1,064
  1,239
  1,286
  1,337
  1,392
  1,453
  1,519
  1,590
  1,667
  1,750
  1,639
  1,735
  1,838
  1,948
  2,065
  2,191
  2,325
  2,467
  2,619
  2,781
  2,952
  3,134
  3,328
  3,533
  3,750
  3,981
  4,225
  4,484
  4,757
  5,047
Discount rate, %
 
  12.30
  12.92
  13.56
  14.24
  14.95
  15.70
  16.48
  17.31
  18.17
  19.08
  20.04
  21.04
  22.09
  23.19
  24.35
  25.57
  26.85
  28.19
  29.60
  31.08
  32.64
  34.27
  35.98
  37.78
  39.67
  41.65
  43.73
  45.92
  48.22
  50.63
PV of cash for distribution, $m
 
  -947
  972
  878
  785
  694
  606
  522
  443
  371
  305
  220
  176
  137
  105
  79
  57
  41
  28
  19
  12
  8
  5
  3
  2
  1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8
  38.8

Tenet Healthcare Corporation, together with its subsidiaries, operates as a diversified healthcare services company. It operates in three segments: Hospital Operations and Other, Ambulatory Care, and Conifer. The company’s general hospitals offer acute care services, operating and recovery rooms, radiology and respiratory therapy services, clinical laboratories, and pharmacies. It also provides intensive and critical care, and coronary care units; physical therapy, orthopedic, oncology, and outpatient services; tertiary care services, including open-heart surgery, neonatal intensive care, and neurosciences; quaternary care in heart, liver, kidney, and bone marrow transplants areas; tertiary and quaternary pediatric, and burn services; and limb-salvaging vascular procedures, acute level 1 trauma services, intravascular stroke care, minimally invasive cardiac valve replacement, imaging technology, and telemedicine access for various medical specialties. In addition, the company offers ambulatory surgery and urgent care centers, imaging centers, and short-stay surgical hospitals, as well as Aspen’s hospitals and clinics; healthcare business process services in the areas of hospital and physician revenue cycle management and value-based care solutions; and microhospitals, physician practices, and health plans. Further, it provides accounts receivable and health information management, and revenue integrity and patient financial services; patient communications and engagement services; and clinical integration, financial risk management, and population health management services. As of February 27, 2017, the company operated 80 general acute care hospitals, 20 short-stay surgical hospitals, and approximately 470 outpatient centers, as well as 239 ambulatory surgery, 34 urgent care, and 21 imaging centers in the United States; and 9 private hospitals and clinics in the United Kingdom. Tenet Healthcare Corporation was founded in 1967 and is headquartered in Dallas, Texas.

FINANCIAL RATIOS  of  Tenet Healthcare (THC)

Valuation Ratios
P/E Ratio -7.5
Price to Sales 0.1
Price to Book 3.5
Price to Tangible Book
Price to Cash Flow 2.6
Price to Free Cash Flow -4.5
Growth Rates
Sales Growth Rate 5.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 3.9%
Cap. Spend. - 3 Yr. Gr. Rate 4.8%
Financial Strength
Quick Ratio 4
Current Ratio 0.3
LT Debt to Equity 3612.5%
Total Debt to Equity 3658.3%
Interest Coverage 1
Management Effectiveness
Return On Assets 2%
Ret/ On Assets - 3 Yr. Avg. 2.1%
Return On Total Capital -1.2%
Ret/ On T. Cap. - 3 Yr. Avg. -0.7%
Return On Equity -34.7%
Return On Equity - 3 Yr. Avg. -17.9%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 84.1%
Gross Margin - 3 Yr. Avg. 84.1%
EBITDA Margin 10.3%
EBITDA Margin - 3 Yr. Avg. 10.1%
Operating Margin 6.2%
Oper. Margin - 3 Yr. Avg. 5.8%
Pre-Tax Margin 1.3%
Pre-Tax Margin - 3 Yr. Avg. 1%
Net Profit Margin -1%
Net Profit Margin - 3 Yr. Avg. -0.6%
Effective Tax Rate 27%
Eff/ Tax Rate - 3 Yr. Avg. 35.9%
Payout Ratio 0%

THC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the THC stock intrinsic value calculation we used $19621 million for the last fiscal year's total revenue generated by Tenet Healthcare. The default revenue input number comes from 2016 income statement of Tenet Healthcare. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our THC stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 12.3%, whose default value for THC is calculated based on our internal credit rating of Tenet Healthcare, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Tenet Healthcare.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of THC stock the variable cost ratio is equal to 83.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2092 million in the base year in the intrinsic value calculation for THC stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 6.3% for Tenet Healthcare.

Corporate tax rate of 27% is the nominal tax rate for Tenet Healthcare. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the THC stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for THC are equal to 50.8%.

Life of production assets of 20.2 years is the average useful life of capital assets used in Tenet Healthcare operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for THC is equal to 3.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $417 million for Tenet Healthcare - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 84.781 million for Tenet Healthcare is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Tenet Healthcare at the current share price and the inputted number of shares is $1.2 billion.

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COMPANY NEWS

▶ [$$] Two Tenet Board Members Resign, Setting Up Potential Proxy Fight   [Aug-18-17 06:21PM  The Wall Street Journal]
▶ Why Tenet Healthcare Shares Dropped 14.4% Today   [Aug-08-17 05:14PM  Motley Fool]
▶ Tenet reports 2Q loss   [12:05AM  Associated Press]
▶ Tenet Health misses on top line   [04:52PM  CNBC Videos]
▶ Stocks Open Sharply Lower As 4 Power Plays Drag On The Nasdaq   [Jul-28-17 09:35AM  Investor's Business Daily]
▶ Hospitals Take Another Hit From Latest Senate Health Plan   [Jul-13-17 01:25PM  TheStreet.com]
▶ Tenet to Report Second Quarter Results on August 7th   [Jul-12-17 11:00AM  Business Wire]
▶ New Strong Buy Stocks for July 10th   [Jul-10-17 09:07AM  Zacks]
▶ "Fast Money" final trades: LULU, THC and more   [Jun-26-17 05:59PM  CNBC Videos]
▶ Trading the CBO: 6 buys in healthcare   [05:00PM  CNBC Videos]
▶ Time To Buy Lagging Healthcare Stocks   [Jun-22-17 11:27PM  Forbes]
▶ [$$] Tenet Healthcare Shares Could Rise 40%   [Jun-07-17 01:39PM  Barrons.com]
▶ Steel, chips, planes & more in the blitz   [01:27PM  CNBC Videos]
▶ Humana renews deal with huge national provider   [02:40PM  American City Business Journals]
▶ S&P 500, Nasdaq Jump to New Records as Crude Oil Slides   [May-25-17 04:05PM  TheStreet.com]
▶ The 3 Best Hospital Stocks to Buy in 2017   [May-17-17 04:42PM  Motley Fool]
▶ PRESS DIGEST- Financial Times - May 8   [May-07-17 07:25PM  Reuters]
▶ [$$] US owner puts Aspen Healthcare up for sale   [12:08PM  Financial Times]
▶ House Ditches Obamacare After Bitter Fight   [02:19PM  TheStreet.com]
Stock chart of THC Financial statements of THC
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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