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Why Is Tenet (THC) Up 13.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for Tenet Healthcare (THC - Free Report) . Shares have added about 13.1% 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 the most recent earnings report in order to get a better handle on the important drivers.

Tenet Healthcare’s Q1 Earnings Surpass, Improve Y/Y

Tenet Healthcaredelivered first-quarter 2021 adjusted net earnings of $1.30, beating the Zacks Consensus Estimate of 80 cents by 62.5%. Further, the bottom line increased 1.6% year over year, mainly owing to better revenues.

Quarterly Operational Update

Net operating revenues of $4.8 billion increased 5.8% year over year on the back of  solid contribution from Hospital operations and Ambulatory segments. Meanwhile, the top line came in line with the Zacks Consensus Estimate.

The company reported adjusted net income from continuing operations of $140 million, comparing favorably with the year-ago quarter’s net income of $135 million. In the quarter under review, adjusted EBITDA was $777 million, up 32.8% year over year.

Operating expenses were up 2.9% year over year to $4 billion due to higher salaries, wages and benefits, supplies and other operating costs.

Quarterly Segmental Details

Hospital & Other

Net operating revenues from the Hospital Operations and Other segment totaled $3.9 billion, up 2.9% year over year. This was owing to higher patient acuity and commercial payer mix. However, the same was offset by lower patient volumes, induced by the COVID-19 pandemic.

On same-hospital basis, net patient service revenues were $3.7 billion, up 3% year over year.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) excluding grant income stood at $410 million, up 19.9% year over year.

Ambulatory

The Ambulatory segment generated net operating revenues of $646 million in the first quarter, up 31.8% year over year on higher acuity and new service line growth. Other factors include the impact of revenues associated with the SCD portfolio transaction completed last December.

Additionally, the segment reported adjusted EBITDA excluding grant income of $244 million, up 56.4% year over year.

Conifer

Conifer’s revenues were down 6.6% from the prior-year quarter to $310 million. This was primarily due in part to revised terms of contract with Tenet hospitals and client attrition.

The segment reported $86 million of adjusted EBITDA in the quarter under review, down 1.1% year over year.

Financial Position

As of Mar 31, 2021, Tenet Healthcare had cash and cash equivalents of $2.1 billion, down 12.5% from the 2020-end level. It doesn’t have any outstanding borrowings under its $1.9-billion line-of-credit facility as of first-quarter end. In April 2021, it renewed an additional one-year commitment to increase the borrowing capacity to $1.9 billion.

The company exited the first quarter of 2021 with $15 billion of long-term debt, down 3% from the level at 2020 end.

In the quarter under review, net cash provided by operating activities was $534 million, up 314% year over year.

Business Update

The company entered into a new multi-year agreement with UnitedHealthcare.

2021 Guidance

Following first-quarter 2021 results, the company raised its 2021 outlook. For the current year, it expects its net income in the band of $2.98-$4.69 per share, up from the previous guidance of$2.09-$3.81.

Net operating revenues are expected in the range of $19.4-$19.8 billion, up from $19.2-$19.6 billion.

Adjusted EBITDA is expected from $3 billion to $3.2 billion, up from the previous range of $2.9-$3.1 billion.

Management expects its EPS within $4.12-$5.46,up from $3.52-$4.81.

Q221 Guidance

Net operating revenues for the second quarter are expected from $4.65 billion to $4.85 billion.

Earnings per share from continuing operations are expected from 69 cents to $1.39 per share.

Adjusted EBITDA is expected in the band of $675-$775 million.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 20.96% due to these changes.

VGM Scores

At this time, Tenet has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Tenet has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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