Shares of Tenet Healthcare Corporation THC gained 3.9% since it reported better-than-expected first-quarter 2023 earnings on Apr 25. The strong results stemmed from a well-performing Ambulatory Care segment, expanding patient volumes within the Hospital Operations segment and a moderated pace of contract labor costs. A hiked adjusted earnings per share (EPS) guidance for 2023 might have also instilled investors’ confidence in the stock.
Tenet Healthcare reported first-quarter 2023 adjusted earnings of $1.42 per share, which outpaced the Zacks Consensus Estimate by 22.4% and exceeded management’s expectations. However, the bottom line plunged 25.3% year over year.
Net operating revenues of $5,021 million rose 5.8% year over year in the quarter under review and outperformed the management’s estimate. The top line beat the consensus mark by 4%.
Adjusted net income from continuing operations of Tenet Healthcare tumbled 26.7% year over year to $154 million and surpassed management’s expectations. Adjusted EBITDA of $832 million declined 6.3% year over year in the first quarter.
Operating expenses increased 7.8% year over year to $4,471 million mainly due to increased salaries, wages and benefits coupled with higher supplies and other operating expenses. Also, the metric came higher than our estimate of $4,323.9 million.
Tenet Healthcare Corporation Price, Consensus and EPS Surprise
Tenet Healthcare Corporation price-consensus-eps-surprise-chart | Tenet Healthcare Corporation Quote
Hospital Operations and Other – The segment reported net operating revenues of $3,899 million in the quarter under review, up 2.7% year over year. The reported figure outpaced the Zacks Consensus Estimate of $3,802 million and our estimate of $3,778.4 million. The unit benefited on the back of growing adjusted admissions.
On a same-hospital basis, net patient service revenues inched up 1.1% year over year to $3,547 million.
Adjusted EBITDA of $405 million dropped 21.2% year over year in the first quarter but beat the consensus mark of $362 million. The metric suffered a blow due to declining COVID-related volume and acuity.
Ambulatory Care - Net operating revenues advanced 22.6% year over year to $905 million, higher than the Zacks Consensus Estimate of $829 million and our estimate of $838.1 million. Solid same-facility net surgical case growth, buyouts, the inauguration of new facilities, service line growth and higher pricing yield contributed to the segment’s performance.
Adjusted EBITDA climbed 20.6% year over year to $340 million in the first quarter and beat the consensus mark of $285 million. The metric received an impetus from prudent cost-curbing initiatives.
Conifer – The segment’s net operating revenues of $324 million remained flat year over year in the quarter under review. However, the reported figure surpassed the Zacks Consensus Estimate as well as our estimate of $321 million.
Adjusted EBITDA slid 5.4% year over year to $87 million but beat the consensus mark of $76 million. Earlier disclosed contract changes with Tenet Healthcare’s hospitals hurt the metric.
Financial Position (as of Mar 31, 2023)
Tenet Healthcare exited the first quarter with cash and cash equivalents of $766 million, which decreased 10.7% from the 2022-end figure. Total assets of $27,067 million dipped 0.3% from the figure at 2022 end.
Long-term debt, net of the current portion, inched up marginally from the figure as of Dec 31, 2022, to $14,935 million. Short-term debt amounted to $148 million.
THC had no outstanding borrowings under its $1.5 billion line of credit at the end of March-quarter.
Total shareholders’ equity of $1,233 million rose 8% from the 2022-end level.
In the reported quarter, Tenet Healthcare generated operating cash flows of $449 million, which nearly doubled year over year. Free cash flows were recorded at $214 million, which increased nearly three-fold year over year.
Share Repurchase Update
THC bought back common shares worth $50 million in the first quarter. It has a leftover buyback capacity of $700 million that is set to expire by 2024-end.
Net operating revenues are anticipated to lie within $4,800-$5,000 million.
Adjusted EBITDA is estimated to lie between $765 million and $815 million.
Adjusted net income from continuing operations is forecasted within $115-$140 million.
Adjusted EPS is projected within $1.07-$1.30.
2023 Guidance Revised
Concurrent with the first-quarter results, THC updated its 2023 guidance with respect to certain metrics.
Net operating revenues are currently anticipated to lie between $19,800 million and $20,200 million in 2023, up from the previous outlook of $19,700-$20,100 million. The midpoint of the revised guidance indicates an improvement of 4.3% from the 2022 reported figure.
Net operating revenues of the Hospital Operations and Other segment are predicted to lie between $15,365 million and $15,615 million, while the same at the Ambulatory Care unit is expected within $3,600-$3,700 million. The Conifer segment’s net operating revenues are estimated within $1,285-$1,335 million.
Adjusted EBITDA is forecasted within $3,210-$3,410 million, higher than the prior view of $3,160-$3,360 million. The midpoint of the updated guidance suggests a 4.6% fall from the 2022 figure. Adjusted EBITDA margin is now expected in the 16.2-16.9% band, up from the prior range of 16-16.7%.
Adjusted net income from continuing operations is presently estimated to lie between $530 million and $655 million this year, higher than the earlier view of $505-$630 million. The midpoint of the revised outlook indicates a decline of 20.4% from the 2022 reported figure.
Adjusted EPS is anticipated within $4.92-$6.09, up from the prior outlook of $4.68-$5.85. The midpoint of the revised guidance hints at a 19% plunge from the 2022 figure.
Net cash provided by operating activities is currently forecasted to lie between $1,725 million and $2,025 million, higher than the earlier guidance of $1,700-$2,000 million.
Free cash flow is now expected within $1,100 million-$1,350 million in 2023, up from the previous outlook of $1,075-$1,325 million. Capital expenditures continue to be projected between $625 million and $675 million.
Tenet Healthcare currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Medical Sector Releases
Of the Medical sector players that have reported first-quarter 2023 results so far, the bottom-line results of Universal Health Services, Inc. UHS, Humana Inc. HUM and Boston Scientific Corporation BSX beat the respective Zacks Consensus Estimate.
Universal Health’s first-quarter 2023 adjusted EPS of $2.34 surpassed the Zacks Consensus Estimate by 8.8% and our estimate of $2.14. Additionally, the bottom line grew 8.8% year over year. Net revenues of UHS advanced 5.3% year over year to $3,468 million in the quarter under review. The top line beat the consensus mark by 1.3% and our estimate of $3,415.5 million. Adjusted EBITDA, net of net income attributable to noncontrolling interests (NCI), amounted to $421.1 million. In the Acute Care Hospital Services segment, adjusted admissions (adjusted for outpatient activity) grew 10.5% year over year on a same-facility basis, while adjusted patient days increased 3.7% year over year.
Humana reported first-quarter 2023 adjusted EPS of $9.38, beating the Zacks Consensus Estimate by 1.4% while missing our estimate of $9.78. The bottom line climbed 16.7% year over year. HUM’s revenues amounted to $26,742 million, surpassing the Zacks Consensus Estimate by 1.6% and our estimate of $26,397 million. The metric rose 11.6% year over year in the quarter under review. Total premiums grew 12.5% year over year to $25,550 million. Revenues from services came in at $999 million, which dropped 21% year over year in the first quarter.
Boston Scientific’s first-quarter 2023 adjusted EPS of 47 cents exceeded the Zacks Consensus Estimate by 9.3%. The bottom line grew 20.5% from the year-ago figure. BSX’s quarterly revenues of $3.39 billion improved 12% year over year on a reported basis and 14.9% on an operational basis (at a constant exchange rate). The top line exceeded the Zacks Consensus Estimate by 7.9%. The gross margin in the first quarter expanded 87 basis points year over year to 69.3%. The cost of products sold increased 8.9% to $1.04 billion.
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