Tenet Healthcare Soars

Tenet Healthcare Corp. (THC - Analyst Report) reported second-quarter income from continuing operations of $66 million or 9 cents per share, at par with the Zacks Consensus Estimate. Nevertheless, it beat the operating income of $65 million or 7 cents per share in the prior-year quarter.

Operating income for the reported quarter excludes $10 million or 1 cent per share related to litigation and impairment pre-tax expenses.

The improved results were due to growth in adjusted admissions, decline in bad debt and effective cost control, which were partly offset by the decline in both paying admissions and total admissions.

Tenet’s net income was $55.0 million or 11 cents per share in the reported quarter, showing substantial growth from $25.0 million or 5 cents per share in the prior-year quarter.

Net operating revenues also improved to $2.37 billion, up 3.1% from $2.30 billion in the prior-year quarter. However, it failed to surpass the Zacks Consensus Estimate of $2.40 billion.

Tenet’s operating revenues in the reported quarter included Medicaid health information technology (HIT) incentive payments.

During the reported quarter, Tenet’s net patient revenues per adjusted patient day increased by 2% on a year-over-year basis.

Admissions declined during the quarter by 0.2%, while outpatient visits increased by 2.7%. Additionally, adjusted admissions increased by 1% year-over-year.

Tenet witnessed a year-over-year increase of 3.4% in total controllable operating expenses in the reported quarter. This increase includes the impact of increased annual salary of Tenet’s employees, higher operating expenses and HIT implementation.

Bad debt expense plummeted to $171 million, showing a decline of $2 million year-over-year in the reported quarter.

Tenet posted adjusted EBITDA of $277 million in the reported quarter, up 3.4% year-over-year from $268 million in the prior-year quarter. Adjusted EBITDA margin was 11.7%.

Financial Update

Tenet exited the quarter with cash and cash equivalents of $264 million, down $3 million from $267 million on March 31, 2010.

Net cash generated from operating activities was $178 million, as compared to $191 million in the second quarter of 2010.

The decrease in cash resulted from the use of $72 million for repurchase of 11.5 million shares and $22 million for purchase of four outpatient centers. Tenet’s capital expenditures were $82 million in the quarter, compared to $77 million in the prior-year quarter.

As of June 30, 2011, total assets of Tenet were $8.44 billion and shareholders’ equity was $1.81 billion.

Outlook for 2011

Tenet reaffirmed its expectations for adjusted EBITDA of $1.175 billion to $1.275 billion.

Competitors

Universal Health Services Inc.(UHS - Snapshot Report), a rival of Tenet declared its second-quarter earnings of $103.6 million or $1.04 per share, beating the Zacks Consensus Estimate of $1.03 per share. Another competitor, HCA Inc. (HCA - Snapshot Report) reported operating earnings of 51 cents per share, failing to beat the Zacks Consensus Estimate of 60 cents.

Tenet carries a Zacks #4 Rank, implying a short-term Sell rating.

Read the full analyst report on THC

Read the full analyst report on UHS

Read the full analyst report on HCA