Tenet Heathcare Scraps Q1 & 2020 Guidance Amid Coronavirus Chaos

Tenet Healthcare Corporation THC withdrew its initial guidance for the first quarter of 2020 and the full year due to the coronavirus or COVID-19 effect on global economy.

The global pandemic, as declared by the World Health Organization, took a toll on the market with Tenet Healthcare being no exception to its onslaught.

For 2020, the company expected net operating revenues of $19.1-$19.5 billion and adjusted earnings per share from continuing operations between $2.69 and $3.35. Adjusted EBITDA was projected to range between $2.8 billion and $2.9 billion whereas adjusted net cash provided by operating activities is predicted between $1.5 and $1.7 billion.

For the first quarter of 2020, net operating revenues were anticipated between $4.6 billion and $4.8 billion. Net income (loss) from continuing operations was forecast in the range of a net loss of $7 million to net income of $37 million. Adjusted EBITDA was estimated between $625 million and $675 million. Adjusted earnings per share from continuing operations were expected to be 42-75 cents.

Rationale Behind the Withdrawal

The widespread novel coronavirus-led uncertainties might affect the company’s near-term financial performance.

The pandemic required hospitals to postpone their elective procedures to accommodate any potential surge in COVID-19 infected admissions. Cancellation in elective surgeries to accommodate coronavirus-infected patients will hurt the company’s revenues.

Although the operating performance of the company was strong through February, USPI surgery volume softened due to government restrictions imposed on elective surgeries. The company witnessed a fall in outpatient and ER volume in hospitals following government rules as well as in fear of COVID-19 patients’ entry on the premises.

Management at the company also said about furloughing around 500 full-time corporate, non-patient care employees to cut costs due to lower patient volumes.

Liquidity

The company currently has $350 million of excess cash and $1 billion of availability capacity under ABL revolving credit facility. Tenet Healthcare concurrently took steps to enhance its liquidity by offering $350 million of surplus cash and $1 billion of availability capacity under ABL revolving credit facility and also seeking an amendment to hike the borrowing capacity by $500 million.

The company also expects to use proceeds from the sale of its Memphis hospitals during this crucial time.

Tenet Healthcare is also likely to gain from the $2-trillion rescue package to aid the hard-hit American economy following the COVID-19 outbreak, which includes $130-billion financial grant to hospitals, which will provide reimbursement to cover health care expenses and lost revenues. The bailout incentive comes as a breather for the hospital industry that recently urged Congress for a $100-billion worth emergency funding. Companies like HCA Healthcare, Inc. HCA, Universal Health Services, Inc. UHS and Community Health Systems, Inc. CYH are also likely to gain from this monetary relief.

Tenet Healthcare is also likely to benefit from the expansion of Medicare's accelerated and advanced payment program for providers and suppliers. The company expects that its hospitals, ASCs and physician practices will be eligible to apply for $1.5 billion of accelerated payments based on current Medicare business levels.

They also estimate funding of the company social security payroll tax match of 6.2% will be deferred for the remaining of the year. This will exempt the system from having to fund around $250 million of taxes in 2020.

In a year's time, this Zacks Rank #3 (Hold) company has lost 57%, wider than its industry's decline of 39.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.



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