We are upgrading our recommendation on
Tenet Healthcare Corporation
) to Outperform based on its consistent revenue growth and improved
Tenet is scheduled to release its second-quarter 2012 financial
results before the market opens on August 7. The Zacks Consensus
Estimate for earnings for the quarter currently stands at 5 cents
per share, down about 45% from the year-ago quarter.
Tenet has been generating consistent growth in operating
revenues since 2006. The first quarter of 2012 also witnessed
operating revenue growth of 2.2% year over year to $2.35 billion.
The improved results were attributable to significant contributions
from Tenet's general hospitals, which have accounted for more than
96% of the net operating revenues for all periods.
Further, Tenet has been steadily expanding its operating
capacity via acquisitions and alliances. It's subsidiary Conifer's
alliance with Catholic Health Initiatives in May 2012 to provide
revenue cycle services is expected to boost revenues, as Catholic
Health generates over $6 billion annually in patient revenues. The
recent renewal of the service contract with
) is also encouraging, as it is one of the largest contracts owned
by the company.
However, Tenet has been experiencing high levels of operating
expenses in the past few years due to the impact of various
industry-wide and company-specific challenges. Operating expenses
increased in the first quarter of 2012 as well, to $2.15 billion
from $2.04 billion in the year-ago quarter.
Moreover, Tenet has been experiencing a tough time since the
onset of 2012 as far as legal cases are concerned. The $42.75
million civil settlement in April 2012 regarding the
over-billing of Medicare, is expected to substantially reduce
Tenet's cash balance, although the company had created a
reserve for the same during 2011. Moreover, the dismissal of the
lawsuit that Tenet filed against Community Health in April is
expected to weigh on the company's expenses.
Currently, Tenet carries a short-term Zacks #2 Rank (Buy).
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