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Why Is Tenet (THC) Up 23.8% Since Last Earnings Report?
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It has been about a month since the last earnings report for Tenet Healthcare (THC - Free Report) . Shares have added about 23.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Tenet due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Tenet Healthcare Q3 Earnings Beat on Solid Ambulatory Care
Tenet Healthcare reported third-quarter 2023 adjusted earnings per share (EPS) of $1.44, which beat the Zacks Consensus Estimate by 20% and surpassed management’s expectations. The bottom line remained flat year over year.
Net operating revenues of THC amounted to $5,066 million, which improved 5.5% year over year in the quarter under review and met the management’s estimate. The top line outpaced the consensus mark by 1%.
The quarterly results were aided by expanding patient volumes, which led to strong revenue growth in the Ambulatory Care and Hospital segments. Though the growth pace of contract labor costs moderated a bit, a rise in the overall expenses of Tenet Healthcare partly offset the upside.
Q3 Performance
Adjusted net income from continuing operations of $153 million fell 4.4% year over year in the third quarter and outperformed management’s expectations. The figure came higher than our estimate of $120.8 million.
Adjusted EBITDA increased 1.5% year over year at $854 million. Adjusted EBITDA, excluding grant income, advanced 8.1% year over year to $851 million.
Operating expenses of $4,552 million escalated 5.6% year over year in the quarter under review and came higher than our estimate of $4,491.3 million. The increase was due to elevated salaries, wages and benefits coupled with higher supplies and other operating expenses.
Segmental Details
Hospital Operations and Other – The segment’s net operating revenues rose 3.7% year over year to $3,919 million in the third quarter, higher than our estimate of $3,833.1 million. Higher adjusted admissions and improved pricing yield contributed to the unit’s results.
On a same-hospital basis, net patient service revenues of $3,575 million improved 3.5% year over year.
Adjusted EBITDA tumbled 7.2% year over year to $401 million in the quarter under review but outpaced our estimate of $359.3 million. Adjusted EBITDA, excluding grant income, grew 5.3% year over year.
Ambulatory Care – The segment reported net operating revenues of $941 million, which climbed 16.7% year over year in the third quarter but lagged our estimate of $952.6 million. The business benefited on the back of robust growth in same-facility net surgical cases, buyouts and inauguration of facilities, expansion of service line and improved pricing yield.
Adjusted EBITDA of $370 million advanced 16% year over year in the quarter under review but lagged our estimate of $373.5 million. Adjusted EBITDA, excluding grant income, improved 16% year over year, thanks to prudent cost-cutting efforts.
Conifer – Net operating revenues totaled $315 million, which slid 5.4% year over year in the third quarter and fell short of our estimate of $336.8 million. The previously announced contract changes with Tenet Healthcare's hospitals gave a blow to the segment’s quarterly results.
Adjusted EBITDA slipped 7.8% year over year to $83 million but outpaced our estimate of $78.9 million.
Financial Position (as of Sep 30, 2023)
Tenet Healthcare exited the third quarter with cash and cash equivalents of $1,054 million, which advanced 22.8% from the figure at 2022-end. Total assets of $27,590 million inched up marginally from the 2022-end level.
Long-term debt, net of the current portion, amounted to $14,901 million. The figure declined marginally from the figure as of Dec 31, 2022. Short-term debt totaled $141 million.
THC had no outstanding borrowings under its $1.5 billion line of credit at the third-quarter end.
Total shareholders’ equity of $1,464 million improved 28.2% from the figure at 2022-end.
In the first nine months of 2023, net cash provided by operating activities increased one-fold from the prior-year comparable period to $1.6 billion. Free cash flows were recorded at $1 billion in the first nine months of 2023.
Share Repurchase Update
THC did not buy back any shares in the third quarter of 2023. It had $660 million remaining under authorization, which is expiring on Dec 31, 2024.
Fourth-Quarter Guidance
Net operating revenues are forecasted to be between $5,131 million and $5,331 million. Adjusted EBITDA is anticipated to be in the range of $836 million-$936 million.
Adjusted net income from continuing operations is projected to be between $119 million and $184 million. Adjusted EPS is estimated to be between $1.12 and $1.74.
2023 Guidance
Concurrent with the third-quarter results, THC updated its 2023 guidance with respect to certain metrics.
Net operating revenues are currently forecasted to lie between $20,300 million and $20,500 million this year compared with the earlier view of $20,100 -$20,500 million. The midpoint of the revised guidance suggests 6.4% growth from the 2022 reported figure.
Net operating revenues of the Hospital segment are presently anticipated between $15,675 million and $15,795 million. The same at the Ambulatory Care and Conifer units are likely to be between $3,790 million and $3,840 million and $1,270 million and $1,300 million, respectively.
Adjusted EBITDA is forecasted to be in the range of $3,365-$3,465 million, up from the previous guidance of $3,310-$3,460 million. Adjusted EBITDA margin is now expected in the 16.6-16.9% band compared with the prior range of 16.5-16.9%.
Adjusted net income from continuing operations is projected to lie between $580 million and $645 million this year, higher than the earlier view of $550-$640 million. The midpoint of the revised outlook implies a decline of 17.7% from the 2022 reported figure.
Adjusted EPS is anticipated to be within $5.43-$6.05 for 2023 compared with the prior outlook of $5.18-$6.03. The midpoint of the revised guidance hints at a 15.6% plunge from the 2022 figure.
Net cash provided by operating activities is currently forecasted to lie between $1,800 million and $2,075 million compared with the earlier guidance of $1,775-$2,025 million.
Free cash flow continues to be expected between $1,125 million and $1,350 million in 2023. Capital expenditures are currently projected to be in the range of $675 million-$725 million.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -15.08% due to these changes.
VGM Scores
At this time, Tenet has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.
Outlook
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.
Performance of an Industry Player
Tenet is part of the Zacks Medical - Hospital industry. Over the past month, Community Health Systems (CYH - Free Report) , a stock from the same industry, has gained 22.9%. The company reported its results for the quarter ended September 2023 more than a month ago.
Community Health Systems reported revenues of $3.09 billion in the last reported quarter, representing a year-over-year change of +2%. EPS of -$0.33 for the same period compares with -$0.52 a year ago.
For the current quarter, Community Health Systems is expected to post earnings of $0.03 per share, indicating a change of -98% from the year-ago quarter. The Zacks Consensus Estimate has changed -44.8% over the last 30 days.
Community Health Systems has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.
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Why Is Tenet (THC) Up 23.8% Since Last Earnings Report?
It has been about a month since the last earnings report for Tenet Healthcare (THC - Free Report) . Shares have added about 23.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Tenet due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Tenet Healthcare Q3 Earnings Beat on Solid Ambulatory Care
Tenet Healthcare reported third-quarter 2023 adjusted earnings per share (EPS) of $1.44, which beat the Zacks Consensus Estimate by 20% and surpassed management’s expectations. The bottom line remained flat year over year.
Net operating revenues of THC amounted to $5,066 million, which improved 5.5% year over year in the quarter under review and met the management’s estimate. The top line outpaced the consensus mark by 1%.
The quarterly results were aided by expanding patient volumes, which led to strong revenue growth in the Ambulatory Care and Hospital segments. Though the growth pace of contract labor costs moderated a bit, a rise in the overall expenses of Tenet Healthcare partly offset the upside.
Q3 Performance
Adjusted net income from continuing operations of $153 million fell 4.4% year over year in the third quarter and outperformed management’s expectations. The figure came higher than our estimate of $120.8 million.
Adjusted EBITDA increased 1.5% year over year at $854 million. Adjusted EBITDA, excluding grant income, advanced 8.1% year over year to $851 million.
Operating expenses of $4,552 million escalated 5.6% year over year in the quarter under review and came higher than our estimate of $4,491.3 million. The increase was due to elevated salaries, wages and benefits coupled with higher supplies and other operating expenses.
Segmental Details
Hospital Operations and Other – The segment’s net operating revenues rose 3.7% year over year to $3,919 million in the third quarter, higher than our estimate of $3,833.1 million. Higher adjusted admissions and improved pricing yield contributed to the unit’s results.
On a same-hospital basis, net patient service revenues of $3,575 million improved 3.5% year over year.
Adjusted EBITDA tumbled 7.2% year over year to $401 million in the quarter under review but outpaced our estimate of $359.3 million. Adjusted EBITDA, excluding grant income, grew 5.3% year over year.
Ambulatory Care – The segment reported net operating revenues of $941 million, which climbed 16.7% year over year in the third quarter but lagged our estimate of $952.6 million. The business benefited on the back of robust growth in same-facility net surgical cases, buyouts and inauguration of facilities, expansion of service line and improved pricing yield.
Adjusted EBITDA of $370 million advanced 16% year over year in the quarter under review but lagged our estimate of $373.5 million. Adjusted EBITDA, excluding grant income, improved 16% year over year, thanks to prudent cost-cutting efforts.
Conifer – Net operating revenues totaled $315 million, which slid 5.4% year over year in the third quarter and fell short of our estimate of $336.8 million. The previously announced contract changes with Tenet Healthcare's hospitals gave a blow to the segment’s quarterly results.
Adjusted EBITDA slipped 7.8% year over year to $83 million but outpaced our estimate of $78.9 million.
Financial Position (as of Sep 30, 2023)
Tenet Healthcare exited the third quarter with cash and cash equivalents of $1,054 million, which advanced 22.8% from the figure at 2022-end. Total assets of $27,590 million inched up marginally from the 2022-end level.
Long-term debt, net of the current portion, amounted to $14,901 million. The figure declined marginally from the figure as of Dec 31, 2022. Short-term debt totaled $141 million.
THC had no outstanding borrowings under its $1.5 billion line of credit at the third-quarter end.
Total shareholders’ equity of $1,464 million improved 28.2% from the figure at 2022-end.
In the first nine months of 2023, net cash provided by operating activities increased one-fold from the prior-year comparable period to $1.6 billion. Free cash flows were recorded at $1 billion in the first nine months of 2023.
Share Repurchase Update
THC did not buy back any shares in the third quarter of 2023. It had $660 million remaining under authorization, which is expiring on Dec 31, 2024.
Fourth-Quarter Guidance
Net operating revenues are forecasted to be between $5,131 million and $5,331 million. Adjusted EBITDA is anticipated to be in the range of $836 million-$936 million.
Adjusted net income from continuing operations is projected to be between $119 million and $184 million. Adjusted EPS is estimated to be between $1.12 and $1.74.
2023 Guidance
Concurrent with the third-quarter results, THC updated its 2023 guidance with respect to certain metrics.
Net operating revenues are currently forecasted to lie between $20,300 million and $20,500 million this year compared with the earlier view of $20,100 -$20,500 million. The midpoint of the revised guidance suggests 6.4% growth from the 2022 reported figure.
Net operating revenues of the Hospital segment are presently anticipated between $15,675 million and $15,795 million. The same at the Ambulatory Care and Conifer units are likely to be between $3,790 million and $3,840 million and $1,270 million and $1,300 million, respectively.
Adjusted EBITDA is forecasted to be in the range of $3,365-$3,465 million, up from the previous guidance of $3,310-$3,460 million. Adjusted EBITDA margin is now expected in the 16.6-16.9% band compared with the prior range of 16.5-16.9%.
Adjusted net income from continuing operations is projected to lie between $580 million and $645 million this year, higher than the earlier view of $550-$640 million. The midpoint of the revised outlook implies a decline of 17.7% from the 2022 reported figure.
Adjusted EPS is anticipated to be within $5.43-$6.05 for 2023 compared with the prior outlook of $5.18-$6.03. The midpoint of the revised guidance hints at a 15.6% plunge from the 2022 figure.
Net cash provided by operating activities is currently forecasted to lie between $1,800 million and $2,075 million compared with the earlier guidance of $1,775-$2,025 million.
Free cash flow continues to be expected between $1,125 million and $1,350 million in 2023. Capital expenditures are currently projected to be in the range of $675 million-$725 million.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -15.08% due to these changes.
VGM Scores
At this time, Tenet has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.
Outlook
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.
Performance of an Industry Player
Tenet is part of the Zacks Medical - Hospital industry. Over the past month, Community Health Systems (CYH - Free Report) , a stock from the same industry, has gained 22.9%. The company reported its results for the quarter ended September 2023 more than a month ago.
Community Health Systems reported revenues of $3.09 billion in the last reported quarter, representing a year-over-year change of +2%. EPS of -$0.33 for the same period compares with -$0.52 a year ago.
For the current quarter, Community Health Systems is expected to post earnings of $0.03 per share, indicating a change of -98% from the year-ago quarter. The Zacks Consensus Estimate has changed -44.8% over the last 30 days.
Community Health Systems has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.