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A month has gone by since the last earnings report for Tenet Healthcare (THC). Shares have lost about 0.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Tenet due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Tenet Healthcare Beats on Q2 Earnings, Ups '21 EPS View
Tenet Healthcare reported second-quarter 2021 adjusted net earnings of $1.59 per share, which surpassed the Zacks Consensus Estimate by 45.9%. The bottom line climbed 26.2% year over year. The company’s results reflect growing revenues and improving patient volumes, partly offset by elevated costs.
Quarterly Operational Update
Net operating revenues improved 35.8% year over year to nearly $5 billion, courtesy of well-performing Hospital, Ambulatory and Conifer segments. The top line beat the Zacks Consensus Estimate by 3.8%. The company’s adjusted net income from continuing operations advanced 30.1% year over year to $173 million. In the second quarter, adjusted EBITDA excluding grant income totaled $810 million, which increased to nearly four-fold from the prior-year quarter. Operating expenses increased 18.9% year over year to $4.4 billion in the quarter due to rise in salaries, wages and benefits, supplies, other operating costs, and depreciation and amortization.
Quarterly Segmental Details
Hospital Operations and Other
Net operating revenues from the segment amounted to $4.1 billion, which rose 32.6% year over year. The upside can be attributed to substantial rise in volumes compared to the prior-year quarter, which got impacted by the COVID-19 pandemic. Improved patient acuity and pricing yield contributed to the segment’s results. On same-hospital basis, net patient service revenues improved 33.1% year over year to $3.7 billion. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) excluding grant income was $445 million, which increased to nearly twenty-five-fold from the prior-year quarter.
The Ambulatory segment delivered net operating revenues of $664 million in the second quarter, which surged 80.4% year over year. The improvement can be attributed to rising volumes, improved patient acuity, growth in new service line and added revenues stemming from buyout of SCD portfolio in December 2020. However, the uptick was partly offset by the divestiture of the urgent care centers and the imaging centers being reorganized under the company’s Hospital segment in second-quarter 2021. The segment reported adjusted EBITDA excluding grant income of $275 million, which more than doubled from the prior-year quarter.
Net operating revenues from the segment improved 4.6% year over year to $319 million, courtesy of growing client volumes and business expansion initiatives. However, the uptick was partly negated by the terms amended in relation to its contract with Tenet hospitals. Adjusted EBITDA from the segment was $90 million in the quarter under review, up 23.3% year over year.
Tenet Healthcare exited the second quarter with cash and cash equivalents of $2.2 billion, which declined 10.3% from the level at 2020 end. It doesn’t have any outstanding borrowings under its $1.9 billion line-of-credit facility as of Jun 30, 2021. This April, the company reiterated its commitment of increasing the borrowing capacity to $1.9 billion by another year.
As of Jun 30, 2021, the company had $15.1 billion of long-term debt, down 3.1% from the 2020-end level. During the six months ended Jun 30, 2021, net cash provided by operating activities declined three-fold year over year to $779 million.
2021 Guidance Revised
Concurrent with second-quarter results, the company updated its outlook for 2021. For the current year, it projects net income per share to be $6.25-$7.17, higher than the prior guidance of $2.98-$4.69. Net operating revenues are anticipated to lie between $19.25 billion and $19.65 billion, lower than the previous forecast of $19.4-$19.8 billion.
Adjusted EBITDA is estimated to be $3.15-$3.25 billion, up from the prior range of $3-$3.2 billion. Adjusted EPS is expected to lie within $5.23-$5.73, higher than the previous guidance of $4.12-$5.46.
Third-Quarter 2021 Projections
Net operating revenues for the third quarter are projected between $4.6 billion and $4.8 billion. Adjusted earnings per share from continuing operations are anticipated to lie within 73 cents to $1.06.Adjusted EBITDA is forecast to be $700-$750 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
At this time, Tenet has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Tenet has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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