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Tenet Beats on Revenue Growth - Analyst Blog

Posted: 8/9/2012 3:21:00 PM
Referenced Stocks: HCA;THC;UHS

Tenet Healthcare Corp. ( THC ) reported second-quarter 2012 income from continuing operations of 10 cents per share, surpassing the Zacks Consensus Estimate of 5 cents, as well as the prior-year quarter's earnings of 8 cents.

Operating income for the quarter under review inched up to $42 million from $40 million recorded in the year-ago quarter.

Growth in revenues arising from higher adjusted admissions, outpatient visits and surgeries led to the year-over-year improvement in earnings. However, the growth was partially offset by the rising operating expenses.

Considering post-tax impairment and restructuring charges of $50 million ($100 million pre-tax) or 12 cents per share, related to the anticipated sale of Creighton University Medical Center, net loss came in at $6 million or 1 cent per share versus net income of $55 million or 11 cents per share in the year-ago quarter.

Operational Update

Net operating revenues stood at $2.27 billion, up 6.2% from $2.13 billion in the prior-year quarter. However, reported revenues lagged the Zacks Consensus Estimate of $2.48 billion.

During the reported quarter, Tenet's net patient revenues per adjusted patient day increased 5.3% on a year-over-year basis to $2,543, primarily due to improved terms of commercial managed care contracts, partially offset by an adverse shift in payer mix.

Admissions edged down 0.4% during the quarter, while adjusted admissions climbed 1.5% year over year. Surgeries increased 4.9% and emergency department visits improved 5.0%.

Bad debt expense increased 13.1% to $190 million from $168 million in the second quarter of 2011.

Tenet posted adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $288 million in the reported quarter, up 4.7% from $275 million in the prior-year quarter. Adjusted EBITDA for the year-ago quarter includes Health Information Technology incentive payment of $25 million. Adjusted EBITDA margin was 12.7% compared with 12.9% in the year-ago quarter.

Financial Position

Tenet exited the quarter with cash and cash equivalents of $82 million, down from $104 million as of March 31, 2012. As of June 30, 2012, total assets of Tenet were $8.49 billion and shareholders' equity was $1.18 billion.

Net cash flow from operating activities in the reported quarter was $243 million, soaring up from $178 million in the year-ago quarter. Tenet's capital expenditures increased to $116 million in the quarter, compared with $82 million in the prior-year quarter.


Tenet affirmed its adjusted EBITDA guidance of $1.250-$1.375 billion for 2012. Net operating revenues are expected to be about $9.0-9.3 billion, while operating income is projected to be about $235-317 million.

Additionally shares outstanding as of December 31, 2012 are expected to be approximately 437 million. Consequently, earnings per share for 2012 are expected to be about 54-73 cents.

Further, net income is anticipated to be around $165-270 million.

Peer Take

Universal Health Services Inc. ( UHS ), a rival of Tenet, declared its second-quarter earnings of $1.12 per share, beating both the Zacks Consensus Estimate of $1.11 and the year-ago earnings of $1.04.

Another competitor, HCA Holdings Inc. ( HCA ) reported adjusted income of 85 cents per share in the second quarter of 2012, surpassing the Zacks Consensus estimate of 78 cents and the year-ago earnings of 51 cents.

Zacks Rank

Tenet carries a Zacks #2 Rank, implying a short-term Buy rating. Considering the fundamentals, we maintain our long-term Outperform recommendation on the shares.

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