Tenet Q2 Earnings Beat on Patient Volumes, '24 EPS View Up

Tenet Healthcare Corporation THC reported second-quarter 2024 adjusted earnings per share of $2.31, which outpaced the Zacks Consensus Estimate by 22.2% and management's expected range of $1.58-$1.98. The bottom line soared 60.4% year over year. 

Net operating revenues of $5.103 billion inched up 0.4% year over year and exceeded management's guided range of $4.9-$5.1 billion. The top line beat the consensus mark by 2.5%.

The quarterly results witnessed robust growth in same-hospital admissions and net revenue per case, coupled with a favorable payer mix and reduced contract labor costs. Efficient divestitures also lowered operating expenses, bolstering overall profitability. An increased 2024 adjusted EPS outlook also seems noteworthy.

Q2 Performance

Adjusted net income of $226 million climbed 46.8% year over year and comfortably exceeded management's expected range of $160-$200 million.

Adjusted EBITDA was $945 million, which advanced 12.1% year over year on the back of higher same-hospital admission growth, solid ambulatory net revenue per case growth, favorable payer mix and improved contract labor costs. Adjusted EBITDA margin of 18.5% improved 190 basis points (bps) year over year.

Total operating costs fell 2.9% year over year to $4.4 billion, attributable to an increase in net gains on sale and consolidation and deconsolidation of facilities from the prior-year quarter. However, costs related to supplies and other operating expenses, net, escalated 1.9% and 2%, respectively, on a year-over-year basis.

Segmental Details

Hospital Operations and Services: The segment's net operating revenues tumbled 4.3% year over year to $3.96 billion in the second quarter due to the impact of the divestiture of hospitals in the previous quarter. However, the metric outpaced the Zacks Consensus Estimate of $3.91 billion and our estimate of $3.9 billion. On a same-hospital basis, net patient service revenues advanced 8.2% year over year.

Adjusted EBITDA of $498 million improved 5.3% year over year on the back of solid growth in same-hospital admissions and revenue per adjusted admissions. The metric was higher than the consensus mark of $466.6 million and our estimate of $472.6 million. Adjusted EBITDA margin improved 120 bps year over year to 12.6%.

Ambulatory Care: The segment recorded net operating revenues of $1.14 billion, which rose 21.1% year over year on the back of improved net revenue per case growth, facility buyouts and expansion of service lines. The metric beat the Zacks Consensus Estimate of $1.05 billion and our estimate of $1.04 billion.

Adjusted EBITDA climbed 20.8% year over year to $447 million, which outpaced the consensus mark of $383.6 million and our estimate of $365.2 million. Adjusted EBITDA margin of 39.2% deteriorated 10 bps year over year.

Financial Position (as of Jun 30, 2024)

Tenet Healthcare exited the second quarter with cash and cash equivalents of $2.9 billion, which more than doubled from the figure in 2023 end. Total assets of $29.3 billion increased 3.4% from the 2023-end level.

Long-term debt, net of the current portion, amounted to $12.8 billion, down 14.2% from the figure as of Dec 31, 2023. The current portion of long-term debt totaled $102 million.

Total shareholders' equity of $3.5 billion more than doubled from the figure at 2023 end.   

THC generated net cash from operating activities of $747 million in the quarter under review, which advanced 24.9% year over year. Free cash flows were recorded at $602 million, up 29.2% year over year.

Share Repurchase Update

THC bought back common shares worth $270 million in the quarter. Management approved a new share buyback program of $1.5 billion.

Outlook

3Q24

Net operating revenues are anticipated to be within $5-$5.1 billion. Adjusted EBITDA is forecasted to be between $900 million and $950 million while adjusted EBITDA margin is estimated to lie in the 18-18.6% band. Adjusted net income is expected to be between $210 million and $250 million. Adjusted EPS is estimated to be between $2.16 and $2.58.

2024

Net operating revenues are currently forecasted to be between $20.6 billion and $21 billion for 2024, up from the prior guided range of $20-$20.4 billion. The midpoint of the revised guidance indicates 1.2% growth from the 2023 reported figure.

Net operating revenues of the Hospital segment are presently anticipated between $16.3 billion and $16.5 billion, higher than the earlier view of $15.9-$16.1 billion. The same at the Ambulatory Care unit is likely to be between $4.325 billion and $4.475 billion, up from the previous outlook of $4.15-$4.3 billion.

Adjusted EBITDA is estimated to be within the range of $3.825-$3.975 billion, up from the earlier view of $3.5-$3.7 billion. Adjusted EBITDA margin is expected in the 18.6-18.9% range.

Adjusted net income is projected to lie between $1.02 billion and $1.09 billion. Adjusted EPS is anticipated to be within $10.41-$11.12, higher than the previous outlook of $8.37-$9.41. The mid-point of the revised outlook implies a 54.2% rise from the 2023 figure. Interest expense is estimated to be between $815 million and $825 million.

Net cash provided by operating activities is currently forecasted between $1.9 billion and $2.25 billion. Free cash flow is estimated within $1.1-$1.35 billion. Capital expenditures are projected to be in the range of $800-$900 million.

Zacks Rank

Tenet Healthcare currently sports a Zacks Rank #1 (Strong Buy).

Other Medical Sector Releases

Of the Medical sector players that have reported second-quarter 2024 results so far, the bottom-line results of UnitedHealth Group Incorporated UNH, Elevance Health, Inc. ELV and HCA Healthcare, Inc. HCA beat the respective Zacks Consensus Estimate.

UnitedHealth Group reported second-quarter adjusted EPS of $6.80, which beat the Zacks Consensus Estimate by 2.3%. The bottom line rose 10.7% year over year. Revenues amounted to $98.9 billion, which improved 6.4% year over year. The top line outpaced the consensus mark of $98.7 billion The medical care ratio of UnitedHealth Group deteriorated 190 bps year over year to 85.1% .

UNH's operating earnings deteriorated 2.3% year over year to $7.9 billion. The net margin deteriorated to 4.3% compared with 5.9% in the year-ago period. The health benefits business of UnitedHealth Group, UnitedHealthcare, generated revenues of $73.9 billion. The figure rose 5.3% year over year. The UnitedHealthcare business served 50.4 million people as of Jun 30, 2024, which decreased 4.6% year over year. Revenues in the Optum business line were $62.9 billion, which climbed 11.7% year over year. 

Elevance Health reported second-quarter adjusted earnings of $10.12 per share, which outpaced the Zacks Consensus Estimate by 1.3%. The bottom line improved 12% year over year. Operating revenues of $43.2 billion dipped 0.4% year over year. However, the top line beat the consensus mark by 0.5%. Medical membership of Elevance Health was around 45.8 million as of Jun 30, 2024, which slipped 5% year over year. Premiums decreased 3.2% year over year to $35.4 billion. Product revenues of $5.5 billion advanced 13.8% year over year.

The Health Benefits segment's operating revenues totaled $37.2 billion, which decreased 2.2% year over year. Operating gain remained almost flat year over year at $2.1 billion. The operating margin of 5.8% improved 20 bps year over year. The Carelon unit's operating revenues amounted to $13.3 billion, which rose 10% year over year. 

HCA Healthcare reported second-quarter adjusted EPS of $5.50, which beat the Zacks Consensus Estimate by 10.7%. The bottom line improved 28.2% year over year. Revenues amounted to $17.5 billion, which improved 10.3% year over year. The top line outpaced the consensus mark by 2.2%. Same-facility equivalent admissions increased 5.2% year over year while same-facility admissions grew 5.8% year over year. 

Same-facility revenue per equivalent admission rose 4.4% year over year. Same-facility inpatient surgeries grew 2.6% year over year while same-facility outpatient surgeries declined 2.1% year over year. Additionally, same-facility emergency room visits rose 5.5% year over year and beat our growth estimate of 4.3%. Adjusted EBITDA improved 16.2% year over year to $3.6 billion.

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