It has been about a month since the last earnings report for Tenet Healthcare (THC). Shares have lost about 10.2% 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 drivers.
Tenet Q3 Earnings Beat on Strong Ambulatory Unit, '24 EPS View Raised
Tenet reported third-quarter 2024 adjusted earnings per share (EPS) of $2.93, which surpassed the Zacks Consensus Estimate by 25.8% and management’s expected range of $2.16-$2.58. The bottom line more than doubled year over year.
Net operating revenues increased 1.1% year over year to $5.12 billion, which surpassed management’s guided range of $5-$5.1 billion. The top line beat the consensus mark by 1.5%.
The quarterly results benefited from higher same-hospital admissions, a favorable payer mix and increased Medicaid supplemental revenues. The Ambulatory Care unit was driven by facility buyouts and service line expansions. A declining operating expense level also contributed to the upside, which was partly offset by the impact of divestiture of hospitals that impacted revenues of the Hospital unit.
Adjusted net income was $282 million, which soared 84.3% year over year and exceeded management’s expected range of $210-$250 million.
Adjusted EBITDA advanced 14.5% year over year to $978 million, which surpassed our estimate of $901.9 million. The year-over-year growth can be attributed to improved same-hospital admissions, solid ambulatory net revenue per case growth, favorable payer mix and higher Medicaid supplemental revenues in Michigan. Adjusted EBITDA margin of 19.1% improved 220 basis points (bps) year over year.
Total operating costs declined nearly 10% year over year to $4.1 billion on the back of lower salaries, wages and benefits, and higher net gains on sales, consolidation and deconsolidation of facilities. However, costs related to supplies and other operating expenses, net, inched up 0.5% and 0.9%, respectively, on a year-over-year basis.
Hospital Operations and Services: The segment recorded net operating revenues of $3.98 billion, which fell 3.4% year over year due to the impact of the divestiture of hospitals in the first quarter of 2024. The metric fell short of the Zacks Consensus Estimate of $4.05 billion but beat our estimate of $3.97 billion. Nevertheless, on a same-hospital basis, net patient service revenues improved 6.1% year over year.
Adjusted EBITDA rose 11.4% year over year to $539 million on the back of higher same-hospital admissions, improved revenue per adjusted admission, a favorable payer mix and higher supplemental revenues in Michigan. The metric surpassed the consensus mark of $490.6 million and our estimate of $471.3 million. Adjusted EBITDA margin of 13.5% improved 180 bps year over year.
Ambulatory Care: The segment’s net operating revenues climbed 21% year over year to $1.14 billion. The metric missed the Zacks Consensus Estimate of $1.15 billion but outpaced our estimate of $1.06 billion. The year-over-year increase resulted from improved net revenue per case growth, facility buyouts and expansion of service lines.
Adjusted EBITDA of $439 million rose 18.6% year over year. The metric lagged the consensus mark of $511 million but beat our estimate of $430.5 million. Adjusted EBITDA margin deteriorated 80 bps year over year to 38.5%.
Tenet Healthcare exited the third quarter with cash and cash equivalents of $4.1 billion, which increased more than three-fold from the 2023-end figure.
Total assets of $29.4 billion increased 3.7% from the figure at 2023-end.
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 $95 million.
Total shareholders’ equity of $3.8 billion more than doubled from the figure at 2023-end.
Net cash from operations totaled $1 billion in the quarter, which more than doubled year over year. Free cash flow of $829 million more than doubled year over year.
Tenet Healthcare bought back common shares worth $124 million in the third quarter.
Net operating revenues are forecasted to be within the $5-$5.2 billion range. Adjusted EBITDA is projected to be between $953 million and $1.05 billion, while adjusted EBITDA margin is estimated to lie in the 19-20.2% band.
Adjusted net income is expected to be between $258 million and $318 million. Adjusted EPS is estimated to be between $2.69 and $3.31.
Net operating revenues are currently forecasted to be between $20.6 billion and $20.8 billion compared with the earlier guidance of $20.6-$21 billion. The midpoint of the revised guidance indicates 0.7% growth from the 2023 figure.
Net operating revenues of the Hospital segment are presently anticipated to be between $16.225 billion and $16.375 billion, lower than the earlier view of $16.275-$16.525 billion. The metric at the Ambulatory Care unit is likely to be between $4.375 billion and $4.425 billion, while the earlier guided range was $4.325 billion-$4.475 billion.
Adjusted EBITDA is estimated to be within the range of $3.9-$4 billion, higher than the prior view of $3.825-$3.975 billion. Adjusted EBITDA margin is expected to be in the 18.9-19.2% range.
Adjusted net income is presently projected to lie between $1.09 billion and $1.15 billion, up from the earlier guidance of $1.02-$1.09 billion. Adjusted EPS is anticipated to be within the range of $11.12-$11.73, higher than the prior view of $10.41-$11.12. The mid-point of the revised outlook implies a 63.7% rise from the 2023 figure. Interest expense is estimated to be between $820 million and $830 million.
Net cash provided by operating activities is currently forecasted between $1.78 billion and $2.13 billion. Free cash flow is estimated to lie between $975 million and $1.23 billion. Capital expenditures continue to be projected in the range of $800-$900 million.
In the past month, investors have witnessed an upward trend in estimates review.
The consensus estimate has shifted 7.47% due to these changes.
At this time, Tenet has an average Growth Score of C, though it is lagging a bit 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 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.
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