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Why Is Tenet (THC) Up 7.2% 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 7.2% 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 the most recent earnings report in order to get a better handle on the important drivers.
Tenet Q2 Earnings Beat on Patient Volumes, '24 EPS View Up
Tenet Healthcare reported second-quarter 2024 adjusted earnings per share (EPS) of $2.31, which outpaced the Zacks Consensus Estimate by 22.2% and management’s expected range of $1.58-$1.98. The bottom line soared 60.4% year over year.
Net operating revenues of $5.103 billion inched up 0.4% year over year and exceeded management’s guided range of $4.9-$5.1 billion. The top line beat the consensus mark by 2.5%.
The quarterly results witnessed robust growth in same-hospital admissions and net revenue per case, coupled with a favorable payer mix and reduced contract labor costs. Efficient divestitures also lowered operating expenses, bolstering overall profitability. An increased 2024 adjusted EPS outlook also seems noteworthy.
Q2 Performance
Adjusted net income of $226 million climbed 46.8% year over year and comfortably exceeded management’s expected range of $160-$200 million.
Adjusted EBITDA was $945 million, which advanced 12.1% year over year on the back of higher same-hospital admission growth, solid ambulatory net revenue per case growth, favorable payer mix and improved contract labor costs. Adjusted EBITDA margin of 18.5% improved 190 basis points (bps) year over year.
Total operating costs fell 2.9% year over year to $4.4 billion, attributable to an increase in net gains on sale and consolidation and deconsolidation of facilities from the prior-year quarter. However, costs related to supplies and other operating expenses, net, escalated 1.9% and 2%, respectively, on a year-over-year basis.
Segmental Details
Hospital Operations and Services: The segment’s net operating revenues tumbled 4.3% year over year to $3.96 billion in the second quarter due to the impact of the divestiture of hospitals in the previous quarter. However, the metric outpaced the Zacks Consensus Estimate of $3.91 billion and our estimate of $3.9 billion. On a same-hospital basis, net patient service revenues advanced 8.2% year over year.
Adjusted EBITDA of $498 million improved 5.3% year over year on the back of solid growth in same-hospital admissions and revenue per adjusted admissions. The metric was higher than the consensus mark of $466.6 million and our estimate of $472.6 million. Adjusted EBITDA margin improved 120 bps year over year to 12.6%.
Ambulatory Care: The segment recorded net operating revenues of $1.14 billion, which rose 21.1% year over year on the back of improved net revenue per case growth, facility buyouts and expansion of service lines. The metric beat the Zacks Consensus Estimate of $1.05 billion and our estimate of $1.04 billion.
Adjusted EBITDA climbed 20.8% year over year to $447 million, which outpaced the consensus mark of $383.6 million and our estimate of $365.2 million. Adjusted EBITDA margin of 39.2% deteriorated 10 bps year over year.
Financial Position (as of Jun 30, 2024)
Tenet Healthcare exited the second quarter with cash and cash equivalents of $2.9 billion, which more than doubled from the figure in 2023 end. Total assets of $29.3 billion increased 3.4% from the 2023-end level.
Long-term debt, net of the current portion, amounted to $12.8 billion, down 14.2% from the figure as of Dec 31, 2023. The current portion of long-term debt totaled $102 million.
Total shareholders’ equity of $3.5 billion more than doubled from the figure at 2023 end.
THC generated net cash from operating activities of $747 million in the quarter under review, which advanced 24.9% year over year. Free cash flows were recorded at $602 million, up 29.2% year over year.
Share Repurchase Update
THC bought back common shares worth $270 million in the quarter. Management approved a new share buyback program of $1.5 billion.
Outlook
3Q24
Net operating revenues are anticipated to be within $5-$5.1 billion. Adjusted EBITDA is forecasted to be between $900 million and $950 million while adjusted EBITDA margin is estimated to lie in the 18-18.6% band. Adjusted net income is expected to be between $210 million and $250 million. Adjusted EPS is estimated to be between $2.16 and $2.58.
2024
Net operating revenues are currently forecasted to be between $20.6 billion and $21 billion for 2024, up from the prior guided range of $20-$20.4 billion. The midpoint of the revised guidance indicates 1.2% growth from the 2023 reported figure.
Net operating revenues of the Hospital segment are presently anticipated between $16.3 billion and $16.5 billion, higher than the earlier view of $15.9-$16.1 billion. The same at the Ambulatory Care unit is likely to be between $4.325 billion and $4.475 billion, up from the previous outlook of $4.15-$4.3 billion.
Adjusted EBITDA is estimated to be within the range of $3.825-$3.975 billion, up from the earlier view of $3.5-$3.7 billion. Adjusted EBITDA margin is expected in the 18.6-18.9% range.
Adjusted net income is projected to lie between $1.02 billion and $1.09 billion. Adjusted EPS is anticipated to be within $10.41-$11.12, higher than the previous outlook of $8.37-$9.41. The mid-point of the revised outlook implies a 54.2% rise from the 2023 figure. Interest expense is estimated to be between $815 million and $825 million.
Net cash provided by operating activities is currently forecasted between $1.9 billion and $2.25 billion. Free cash flow is estimated within $1.1-$1.35 billion. Capital expenditures are projected to be in the range of $800-$900 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
The consensus estimate has shifted 44.2% 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Tenet has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Tenet belongs to the Zacks Medical - Hospital industry. Another stock from the same industry, HCA Healthcare (HCA - Free Report) , has gained 8.6% over the past month. More than a month has passed since the company reported results for the quarter ended June 2024.
HCA reported revenues of $17.49 billion in the last reported quarter, representing a year-over-year change of +10.3%. EPS of $5.50 for the same period compares with $4.29 a year ago.
HCA is expected to post earnings of $4.83 per share for the current quarter, representing a year-over-year change of +23.5%. Over the last 30 days, the Zacks Consensus Estimate has changed +3.5%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #1 (Strong Buy) for HCA. Also, the stock has a VGM Score of A.
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Why Is Tenet (THC) Up 7.2% 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 7.2% 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 the most recent earnings report in order to get a better handle on the important drivers.
Tenet Q2 Earnings Beat on Patient Volumes, '24 EPS View Up
Tenet Healthcare reported second-quarter 2024 adjusted earnings per share (EPS) of $2.31, which outpaced the Zacks Consensus Estimate by 22.2% and management’s expected range of $1.58-$1.98. The bottom line soared 60.4% year over year.
Net operating revenues of $5.103 billion inched up 0.4% year over year and exceeded management’s guided range of $4.9-$5.1 billion. The top line beat the consensus mark by 2.5%.
The quarterly results witnessed robust growth in same-hospital admissions and net revenue per case, coupled with a favorable payer mix and reduced contract labor costs. Efficient divestitures also lowered operating expenses, bolstering overall profitability. An increased 2024 adjusted EPS outlook also seems noteworthy.
Q2 Performance
Adjusted net income of $226 million climbed 46.8% year over year and comfortably exceeded management’s expected range of $160-$200 million.
Adjusted EBITDA was $945 million, which advanced 12.1% year over year on the back of higher same-hospital admission growth, solid ambulatory net revenue per case growth, favorable payer mix and improved contract labor costs. Adjusted EBITDA margin of 18.5% improved 190 basis points (bps) year over year.
Total operating costs fell 2.9% year over year to $4.4 billion, attributable to an increase in net gains on sale and consolidation and deconsolidation of facilities from the prior-year quarter. However, costs related to supplies and other operating expenses, net, escalated 1.9% and 2%, respectively, on a year-over-year basis.
Segmental Details
Hospital Operations and Services: The segment’s net operating revenues tumbled 4.3% year over year to $3.96 billion in the second quarter due to the impact of the divestiture of hospitals in the previous quarter. However, the metric outpaced the Zacks Consensus Estimate of $3.91 billion and our estimate of $3.9 billion. On a same-hospital basis, net patient service revenues advanced 8.2% year over year.
Adjusted EBITDA of $498 million improved 5.3% year over year on the back of solid growth in same-hospital admissions and revenue per adjusted admissions. The metric was higher than the consensus mark of $466.6 million and our estimate of $472.6 million. Adjusted EBITDA margin improved 120 bps year over year to 12.6%.
Ambulatory Care: The segment recorded net operating revenues of $1.14 billion, which rose 21.1% year over year on the back of improved net revenue per case growth, facility buyouts and expansion of service lines. The metric beat the Zacks Consensus Estimate of $1.05 billion and our estimate of $1.04 billion.
Adjusted EBITDA climbed 20.8% year over year to $447 million, which outpaced the consensus mark of $383.6 million and our estimate of $365.2 million. Adjusted EBITDA margin of 39.2% deteriorated 10 bps year over year.
Financial Position (as of Jun 30, 2024)
Tenet Healthcare exited the second quarter with cash and cash equivalents of $2.9 billion, which more than doubled from the figure in 2023 end. Total assets of $29.3 billion increased 3.4% from the 2023-end level.
Long-term debt, net of the current portion, amounted to $12.8 billion, down 14.2% from the figure as of Dec 31, 2023. The current portion of long-term debt totaled $102 million.
Total shareholders’ equity of $3.5 billion more than doubled from the figure at 2023 end.
THC generated net cash from operating activities of $747 million in the quarter under review, which advanced 24.9% year over year. Free cash flows were recorded at $602 million, up 29.2% year over year.
Share Repurchase Update
THC bought back common shares worth $270 million in the quarter. Management approved a new share buyback program of $1.5 billion.
Outlook
3Q24
Net operating revenues are anticipated to be within $5-$5.1 billion. Adjusted EBITDA is forecasted to be between $900 million and $950 million while adjusted EBITDA margin is estimated to lie in the 18-18.6% band. Adjusted net income is expected to be between $210 million and $250 million. Adjusted EPS is estimated to be between $2.16 and $2.58.
2024
Net operating revenues are currently forecasted to be between $20.6 billion and $21 billion for 2024, up from the prior guided range of $20-$20.4 billion. The midpoint of the revised guidance indicates 1.2% growth from the 2023 reported figure.
Net operating revenues of the Hospital segment are presently anticipated between $16.3 billion and $16.5 billion, higher than the earlier view of $15.9-$16.1 billion. The same at the Ambulatory Care unit is likely to be between $4.325 billion and $4.475 billion, up from the previous outlook of $4.15-$4.3 billion.
Adjusted EBITDA is estimated to be within the range of $3.825-$3.975 billion, up from the earlier view of $3.5-$3.7 billion. Adjusted EBITDA margin is expected in the 18.6-18.9% range.
Adjusted net income is projected to lie between $1.02 billion and $1.09 billion. Adjusted EPS is anticipated to be within $10.41-$11.12, higher than the previous outlook of $8.37-$9.41. The mid-point of the revised outlook implies a 54.2% rise from the 2023 figure. Interest expense is estimated to be between $815 million and $825 million.
Net cash provided by operating activities is currently forecasted between $1.9 billion and $2.25 billion. Free cash flow is estimated within $1.1-$1.35 billion. Capital expenditures are projected to be in the range of $800-$900 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
The consensus estimate has shifted 44.2% 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Tenet has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Tenet belongs to the Zacks Medical - Hospital industry. Another stock from the same industry, HCA Healthcare (HCA - Free Report) , has gained 8.6% over the past month. More than a month has passed since the company reported results for the quarter ended June 2024.
HCA reported revenues of $17.49 billion in the last reported quarter, representing a year-over-year change of +10.3%. EPS of $5.50 for the same period compares with $4.29 a year ago.
HCA is expected to post earnings of $4.83 per share for the current quarter, representing a year-over-year change of +23.5%. Over the last 30 days, the Zacks Consensus Estimate has changed +3.5%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #1 (Strong Buy) for HCA. Also, the stock has a VGM Score of A.