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Tenet (THC) Up 13.5% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Tenet Healthcare (THC). Shares have added about 13.5% 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 Beats on Q1 Earnings, Ups '24 EPS View

Tenet Healthcare reported first-quarter 2024 adjusted earnings per share (EPS) of $3.22, which surpassed the Zacks Consensus Estimate by a whopping 122.1% and crossed management’s expectation of $1.24-$1.62. The bottom line more than doubled year over year.

廣告

Net operating revenues advanced 6.9% year over year to $5.4 billion and exceeded management’s guidance of $5-$5.2 billion. The top line beat the consensus mark by 4.4%.

The solid quarterly results were driven by growing patient volumes within the Hospital Operations and Services segment, partly offset by higher medical fees. Meanwhile, an increase in service lines drove the Ambulatory Care segment’s results. On top of that, a significant decline in the overall expense level contributed to the upside.

Q1 Performance

Adjusted net income from continuing operations amounted to $324 million, which more than doubled year over year and comfortably exceeded management’s expected range of $130-$170 million.

Adjusted EBITDA of $1 billion climbed 23.1% year over year on the back of improved same-hospital admissions and favorable payer mix. Adjusted EBITDA margin improved 250 basis points (bps) year over year to 19.1%.

Total operating costs of $2.1 billion dropped 52.1% year over year on the back of a significant increase in net gains on sale, consolidation and deconsolidation of facilities from the prior-year quarter. However, costs related to salaries, wages and benefits, supplies and other operating expenses, net, increased 2.8%, 4.2% and 5.6%, respectively, on a year-over-year basis.

Segmental Details

Hospital Operations and Services – The segment recorded net operating revenues of $4.4 billion in the first quarter, which grew 6.2% year over year on the back of higher admissions, favorable payer mix and strong pricing yield. The metric outpaced the Zacks Consensus Estimate of $4.09 billion and our estimate of $4.13 billion. On a same-hospital basis, net patient service revenues advanced 10.8% year over year.

Adjusted EBITDA rose 28% year over year to $630 million, higher than the consensus mark of $449.6 million and our estimate of $429.5 million. Adjusted EBITDA margin was 14.4%, which improved 240 bps year over year.

Ambulatory Care – Net operating revenues in the segment improved 9.9% year over year to $995 million, attributable to improved net revenue per case, buyouts, inauguration of de novo facilities and the expansion of service lines. The metric surpassed the Zacks Consensus Estimate of $981.6 million and our estimate of $985 million.

Adjusted EBITDA grew 15.9% year over year to $394 million, higher than the consensus mark of $387.2 million but short of our estimate of $404.2 million. Adjusted EBITDA margin of 39.6% improved 200 bps year over year.

Financial Position (As of Mar 31, 2024)

Tenet Healthcare exited the first quarter with cash and cash equivalents of $2.5 billion, which more than doubled from the figure in 2023 end. Total assets of $28.9 billion increased 2.1% from the 2023-end level.

Long-term debt, net of the current portion, amounted to $12.8 billion, down 14.2% from the figure as of Dec 31, 2023. The current portion of long-term debt totaled $107 million.

Total shareholders’ equity of $3.5 billion more than doubled from the figure at 2023 end. 

Net cash provided by operating activities was $586 million, which climbed 30.5% year over year. Free cash flows were recorded at $346 million, which soared 61.7% year over year.

Share Repurchase Update

Tenet Healthcare bought back common shares worth $278 million in the first quarter of 2024. It had a leftover capacity of $272 million under its authorized repurchase program as of Mar 31, 2024, which is set to expire on Dec 31, 2024.

Outlook

2Q24

Net operating revenues are anticipated to lie within $4.9-$5.1 billion. Adjusted EBITDA is forecasted between $835 million and $885 million, while adjusted EBITDA margin is estimated to lie in the 17-17.4% band. Adjusted net income from continuing operations is expected to be between $160 million and $200 million. Adjusted EPS is estimated to be between $1.58 and $1.98.

2024

Net operating revenues are currently forecasted to be between $20 billion and $20.4 billion for 2024, up from the prior guidance of $19.9-$20.3 billion. The midpoint of the revised guidance indicates a 1.7% decline from the 2023 reported figure.

Net operating revenues of the Hospital segment are presently anticipated between $15.9 billion and $16.1 billion. The same at the Ambulatory Care unit is likely to be between $4.2 billion and $4.3 billion.

Adjusted EBITDA is estimated to lie within $3.5-$3.7 billion, up from the earlier view of $3.285-$3.485 billion. Adjusted EBITDA margin is expected in the 17.5%-18.1% range.

Adjusted net income from continuing operations is projected to lie between $845 million and $950 million, up from the prior expectation of $605-$725 million. The midpoint of the updated guidance suggests 20.6% growth from the 2023 figure. Adjusted EPS is anticipated to be within $8.37-$9.41, higher than the previous outlook of $5.76-$6.90. The mid-point of the revised outlook implies a 27.4% rise from the 2023 figure. Interest expense continues to be estimated between $825 million and $835 million.

Net cash provided by operating activities is currently forecasted between $1.7 billion and $2.1 billion for 2024. It is expected that free cash flow will stay between $950 million and $1.2 billion. Capital expenditures continue to be projected to be in the range of $775-$875 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

The consensus estimate has shifted 29.55% due to these changes.

VGM Scores

At this time, Tenet has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, 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 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 #1 (Strong Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Tenet is part of the Zacks Medical - Hospital industry. Over the past month, Universal Health Services (UHS), a stock from the same industry, has gained 5.9%. The company reported its results for the quarter ended March 2024 more than a month ago.

Universal Health Services reported revenues of $3.84 billion in the last reported quarter, representing a year-over-year change of +10.9%. EPS of $3.70 for the same period compares with $2.34 a year ago.

For the current quarter, Universal Health Services is expected to post earnings of $3.26 per share, indicating a change of +28.9% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.2% over the last 30 days.

Universal Health Services has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.

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