Tenet Healthcare (NYSE: THC) and American Renal Associates (NYSE:ARA) are both small-cap medical companies, but which is the better stock? We will contrast the two businesses based on the strength of their profitability, analyst recommendations, institutional ownership, earnings, risk, dividends and valuation.

Valuation & Earnings

This table compares Tenet Healthcare and American Renal Associates’ top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Tenet Healthcare $19.62 billion 0.07 -$192.00 million ($5.51) -2.54
American Renal Associates $749.77 million 0.62 -$380,000.00 ($0.33) -44.60

American Renal Associates has lower revenue, but higher earnings than Tenet Healthcare. American Renal Associates is trading at a lower price-to-earnings ratio than Tenet Healthcare, indicating that it is currently the more affordable of the two stocks.

Volatility and Risk

Tenet Healthcare has a beta of 1.14, suggesting that its share price is 14% more volatile than the S&P 500. Comparatively, American Renal Associates has a beta of 3.64, suggesting that its share price is 264% more volatile than the S&P 500.

Institutional and Insider Ownership

93.3% of American Renal Associates shares are held by institutional investors. 3.1% of Tenet Healthcare shares are held by company insiders. Comparatively, 12.6% of American Renal Associates shares are held by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company will outperform the market over the long term.

Analyst Recommendations

This is a breakdown of recent ratings and target prices for Tenet Healthcare and American Renal Associates, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Tenet Healthcare 0 8 5 0 2.38
American Renal Associates 0 0 4 0 3.00

Tenet Healthcare currently has a consensus target price of $18.42, indicating a potential upside of 31.55%. American Renal Associates has a consensus target price of $19.33, indicating a potential upside of 31.34%. Given Tenet Healthcare’s higher probable upside, analysts clearly believe Tenet Healthcare is more favorable than American Renal Associates.

Profitability

This table compares Tenet Healthcare and American Renal Associates’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Tenet Healthcare -2.85% -5.61% -0.23%
American Renal Associates -2.15% 15.80% 2.34%

Summary

American Renal Associates beats Tenet Healthcare on 10 of the 13 factors compared between the two stocks.

Tenet Healthcare Company Profile

Tenet Healthcare Corporation (Tenet) is a healthcare services company. The Company operates regionally focused, integrated healthcare delivery networks in large urban and suburban markets in the United States. The Company’s segments include Hospital Operations and Other, Ambulatory Care and Conifer. As of December 31, 2016, its subsidiaries operated 79 hospitals, including three academic medical centers, two children’s hospitals, two specialty hospitals and one critical access hospital. The Company’s Ambulatory Care segment includes the operations of its USPI joint venture and its Aspen facilities. As of December 31, 2016, Conifer provided one or more of the business process services described above from 20 service centers to more than 800 Tenet and non-Tenet hospital and other clients in over 40 states. As of December 31, 2016, the Company operated 20 short-stay surgical hospitals, over 470 outpatient centers, and nine facilities in the United Kingdom.

American Renal Associates Company Profile

American Renal Associates Holdings, Inc. is a dialysis service provider in the United States focused on joint venture (JV) partnerships with physicians. As of December 31, 2016, the Company owned and operated 214 dialysis clinics in partnership with 379 nephrologist partners treating over 14,000 patients in 25 states and the District of Columbia. The Company operates its dialysis clinics exclusively through a JV model, in which it partners primarily with local nephrologists to develop, own and operate dialysis clinics, while the providers of the majority of dialysis services in the United States operate through a combination of subsidiaries and joint ventures. It provides patient care and clinical outcomes to patients suffering from end-stage renal disease (ESRD). Its clinics offer both in center and home dialysis options to meet the needs of patients. Its clinics primarily provide in center hemodialysis treatments and ancillary items and services.

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