Tenet Optimistic on 2012 Earnings

Yesterday, Tenet Healthcare Corp. (THC - Analyst Report) announced its projection of adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to be within $1.2–1.3 billion.

Meanwhile, the adjusted EBITDA includes the deductions from accounting changes to affect some deferred income recognized out of certain Medicare Healthcare Information Technology (HIT) incentive payments, which is expected to be about $31 million in 2012.

In November last year, management had reiterated its adjusted EBITDA projection to be between $1.175 billion and $1.275 billion. The company expects the upside to appear from cost reduction through its ongoing Medicare Performance Initiative and an increase its physicians. The outlook also reflects a growth projection in Tenet’s Conifer service business.

The growth strategies discussed above are further expected to negate the adverse effects of government reimbursements and macro economic volatility. However, Tenet’s adjusted EBITDA dipped 3.9% year over year to $195 million in the third quarter of 2011.

Adjusted EBITDA is expected to weaken again in the fourth quarter of 2011, given the deferred recognition of revenues related to HIT incentive payments worth $12 million, which resulted from a change in the accounting method. Even an adverse affect of decline in interest rate is expected to hurt adjusted EBITDA by about $7 million.

However, these will be partially offset by a year-over-year hike in admissions and a flat growth in outpatient visits. Additionally, a net favorable impact of $28 million related to the California Provider Fee Six-Month program is also expected in the fourth quarter of 2011.

Earnings Review

In November last year, Tenet reported its third-quarter operating earnings of $16 million or 4 cents per share, beating the Zacks Consensus Estimate of 1 cent and operating loss of $14 million or 1 cent per share in the prior-year quarter.

The improved results were due to a growth in admissions, outpatient visits and surgeries, which were partly offset by the rise in bad debt and operating expenses.

The Zacks Consensus Estimate for fourth-quarter earnings is pegged at 14 cents per share, up about 41% from the year-ago quarter. For 2011, Tenet’s earnings are expected to be 42 cents per share, growing about 3% from 2010.

Management expects to announce its detailed growth guidance for 2012 on February 28, 2012, when the company is scheduled to release the results for its fourth quarter and full year 2011.

Tenet competes with HCA Inc. (HCA - Snapshot Report) and Community Health Systems Inc. (CYH - Snapshot Report). The company carries a Zacks #2 Rank, which implies a short-term Buy rating and a long term Outperform stance.

On Monday, the shares of Tenet closed at $5.10, up 2.2%, on the New York Stock Exchange.

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