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Why Is Tenet (THC) Down 26.4% Since Last Earnings Report?

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A month has gone by since the last earnings report for Tenet Healthcare (THC). Shares have lost about 26.4% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Tenet Healthcare Q1 Earnings Beat Mark, Surge Y/Y

Tenet Healthcare reported first-quarter 2022 adjusted net earnings of $1.93 per share, which surpassed the Zacks Consensus Estimate of $1.04 by 85.6%. The figure also rose 48.5% year over year.

THC’s results reflect reduced expenses and operational excellence.

Quarterly Operational Update

Net operating revenues beat the Zacks Consensus Estimate 1.5% to $4.7 billion. However, the figure dipped 0.8% year over year.

THC’s adjusted net income from continuing operations increased 52.1% year over year to $213 million. In the first quarter, adjusted EBITDA excluding grant income totaled $882 million, which increased 19.2% from the prior-year quarter’s level.

Operating expenses fell 4.3% year over year to $4.1 billion in the quarter owing to lower salaries, wages and benefits, lower supplies and other net operating expenses.

Quarterly Segmental Details

Hospital Operations and Other

Net operating revenues (which exclude grant income) from the segment amounted to $3.798 billion, which fell 3.8% year over year. The downside was due to the sale of its Miami-area hospitals on Aug 1, 2021. On same-hospital basis, net patient service revenues improved 2.5% year over year to $3.478 billion. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) excluding grant income was $510 million, which increased 24.4% year over year.

Ambulatory Care

The Ambulatory Care segment delivered net operating revenues of $738 million in the first quarter, which climbed 14.2% year over year. The improvement can be attributed to new service line growth and additional revenues related to the SurgCenter Development (SCD) acquisition, etc. However, the uptick was partly offset by the second-quarter 2021 divestiture of USPI's urgent care centers and the imaging centers as part of the reorganization process under the Hospital segment. The segment reported an adjusted EBITDA (excluding grant income) of $280 million, up 14.8% from the prior-year quarter’s level.

Conifer

Net operating revenues from the segment increased 4.5% year over year to $324 million owing to contractual rate increases and new business expansion. Adjusted EBITDA from the segment was $92 million in the quarter under review, up 7% year over year.

Financial Position

Tenet Healthcare exited the first quarter of 2022 with cash and cash equivalents of $1.4 billion, which declined 40.6% from the level at 2021 end. THC doesn’t have any outstanding borrowings under its $1.5-billion line of credit as of Mar 31, 2022. THC has completed the early retirement of $824 million of debt to date in 2022. In 2021, net cash provided by operating activities declined 57.3% year over year.

2022 Guidance

Concurrent with first-quarter results, THC updated its 2022 guidance. For the current year, net income is projected in the range of $645-$775 million, indicating a decline from the 2021 figure of $915 million. Net operating revenues are still anticipated between $19.5 billion and $19.9 billion, the midpoint indicating an upside of 1.1% from the 2021 reported figure of $19.48 billion. Adjusted EBITDA is estimated to be $3.375-$3.575 billion, suggesting 6% core growth from 2021’s reported figure. Adjusted EBITDA margin is expected in the range of 17.3-18%. Adjusted EPS is expected within $5.86-$7.03, the midpoint being down 14.9% from the 2021 reported figure. The guidance for net cash provided by operating activities ranges from $1.150 billion to $1.450 billion, the midpoint indicating a downside of 17.1% from the 2021 reported figure. Free cash flow is expected in the band of $425-$675 million, implying a decline from the 2021 reported figure of $910 million.

Q222 Guidance

Net operating revenues for the second quarter are expected in the $4.8-$5 billion band. Adjusted EBITDA is projected between $800 million and $850 million. EPS for the second quarter is estimated from $1.18 to $1.45 per share.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -7.28% due to these changes.

VGM Scores

Currently, Tenet has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, 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.

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.


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