Why Is Tenet (THC) Down 48.6% Since Last Earnings Report?

A month has gone by since the last earnings report for Tenet Healthcare (THC). Shares have lost about 48.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Tenet due for a breakout? 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 Q4 Earnings Miss Estimates, Rise Y/Y

Tenet Healthcare delivered fourth-quarter 2019 adjusted net earnings of 99 cents per share, missing the Zacks Consensus Estimate by 2%. However, the same increased 94.1% year over year mainly due to operational improvements in each of the business segments.

Quarterly Operational Update

Net operating revenues were $4.8 billion, up 4% year over year due to improved performances by Ambulatory Care and Hospital segments, offset by poor performance of Conifer segment. Moreover, the top line beat the Zacks Consensus Estimate by 1.1%.

Total visits for the company decreased 1.9% to 1700.7 billion in the fourth quarter of 2019.

The company reported net income from continuing operations of $2 million against the year-ago quarter’s net loss of $5 million. In the quarter under review, adjusted EBITDA was $805 million, up 17.7% year over year.

Full-Year Highlights

Net operating revenues for 2019 increased 1% year over year to $18.5 billion.
The company witnessed net loss from continuing operations of $2.35 per share against net income of $1.06 per share in the year-ago quarter.

Quarterly Segmental Details

Hospital & Other

Net operating revenues for the Hospital Operations and Other segment totaled $3.9 billion, up 3.6% year over year. This uptick was largely attributable to revenue growth on a same-hospital basis. It was partially offset by hospital divestitures.

On a same-hospital basis, net patient revenues were $3.7 billion, up 5.2% year over year.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $407 million, up 15.6% year over year.

Ambulatory

The Ambulatory segment generated net operating revenues of $632 million, up 14.1% year over year. Additionally, the segment reported adjusted EBITDA of $304 million, up 24.1% year over year.

Conifer

Conifer’s revenues decreased 10.8% from the prior-year quarter’s level to $332 million. This was primarily due to client attrition as a result of hospital divestitures by both Tenet and other customers.

The segment reported $94 million of adjusted EBITDA in the quarter under review, up 8% year over year.

Financial Position

As of Dec 31, 2019, Tenet Healthcare had cash and cash equivalents of $262 million, down 36.2% from the end of 2018. The company exited the fourth quarter with $171 million of long-term debt, down 6% from 2018 end.

For 2019, net cash provided by operating activities was $1.2 billion, up 17.5% year over year.

2020 Guidance

Tenet Healthcare expects net operating revenues of $19.1-$19.5 billion. Adjusted earnings per share from continuing operations are projected between $2.69 and $3.35. Adjusted EBITDA is estimated between $2.8 billion and $2.9 billion. Tenet Healthcare projects adjusted free cash flow of $775-$975 million. The company expects adjusted net cash provided by operating activities of $1.5-$1.7 billion. The company assumes interest expense to be in the range of $975-$985 million.

Q1 View

Net operating revenues are expected to be between $4.6 billion and $4.8 billion. Net income (loss) from continuing operations is expected to be in the range of net loss of $7 million to net income of $37 million. Adjusted EBITDA is estimated to be between $625 million and $675 million. Adjusted earnings per share from continuing operations are expected to be 42-75 cents. The company expects interest expenses to be $240-$250 million in the first quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 11.01% due to these changes.

VGM Scores

At this time, Tenet has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Tenet has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.