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Why Is Tenet (THC) Up 11.8% 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 11.8% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Tenet Healthcare's Earnings Beat in Q3, Improve Y/Y

Tenet Healthcare delivered third-quarter 2020 adjusted net earnings of 64 cents per share, beating the Zacks Consensus estimate by 94%. Further, the bottom line increased 10.3% year over year, mainly owing to lower costs and a solid Ambulatory segment.

The third quarter was more challenging than the second as COVID positive inpatient census soared by around 64% in late July and August.

Quarterly Operational Update

Net operating revenues of $4.5 billion dipped 0.2% year over year due to weak contribution from Hospital operations as well as Conifer segments. However, the top line beat the Zacks Consensus Estimate by 4.8%.

The company reported adjusted net income from continuing operations of $68 million, comparing favorably with the year-ago quarter’s net income of $67 million. In the quarter under review, adjusted EBITDA was $621 million, up 12.7% year over year.

Operating expenses fell 0.9% year over year to $4.2 billion owing to lower salaries, wages and benefits, and litigation and investigation costs.

Quarterly Segmental Details

Hospital & Other

Net operating revenues from the Hospital Operations and Other segment totaled $3.8 billion, down 1.2% year over year. This was due to the impact of coronavirus, which shrank patient volumes.

On a same-hospital basis, net patient revenues were $3.5 billion, down 1.7% year over year.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $297 million decreased 13.2% year over year.

Ambulatory

The Ambulatory segment generated net operating revenues of $565 million in the third quarter, up 8.2% year over year on the back of higher acuity and new service line growth.

Additionally, the segment reported adjusted EBITDA of $228 million, up 10.1% year over year.

Conifer

Conifer’s revenues dipped 3.3% from the prior-year quarter to $325 million. This was primarily due to client attrition as a result of hospital divestitures by both Tenet and other customers along with the COVID-19 adversity on volumes.

The segment reported $96 million of adjusted EBITDA in the quarter under review, up 6.7% year over year.

Financial Position

As of Sep 30, 2020, Tenet Healthcare had cash and cash equivalents of $3.03 billion, up from $262 million at 2019 end. The company maintained enough liquidity to meet the COVID-19 pandemic requirements. The company doesn’t have any borrowings under its $1.9 billion line-of-credit facility.

The company exited the third quarter with $15.6 billion of long-term debt, up 7.96.7% from the level at 2019 end. At the end of the third quarter, net cash provided by operating activities was $2.9 billion compared with $713 million in the year-ago period.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

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. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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 looks promising. 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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