Tenet Healthcare is Tuesday's IBD Stock Of The Day. The operator of hospitals and surgery centers blew past second-quarter earnings estimates and sharply raised its full-year outlook amid boom times for health care service providers. Tenet stock jumped into a buy zone, notching a record high.
Tenet Earnings
Dallas-based Tenet reported late Tuesday adjusted Q2 earnings of $2.31 per share. That was up 60% from a year ago and 22% above the analyst consensus, according to FactSet. Revenue inched up less than 1% to $5.1 billion, but edged past estimates of about $5 billion.
For the full year, Tenet raised its EPS outlook to a range of $10.41 to $11.12. That was above the prior range of $8.37 to $9.41.
Tenet also announced a new $1.5 billion share repurchase authorization, equal to just over 10% of its market cap.
Tenet's Transformation
As Deutsche Bank analyst Pito Chickering wrote in a May 30 note, Tenet is in the middle of a multiyear transformation "into a higher margin (ambulatory surgery center) ASC-centric company with improving financial flexibility."
Essentially flat revenue in Q2 reflected Tenet's sale of nine hospitals this year. The ambulatory care segment saw revenue grow 21% from a year ago amid growth in revenue per case, acquisitions and offering a greater breadth of services.
Same-facility surgical revenue grew 7.1% from a year ago. That came as the number of cases rose just 0.2%. Revenue per case rose 6.8%. Tenet attributed the jump in per case revenue to "higher acuity associated with favorable case mix as well as favorable payer mix."
Essentially, patients needed more complex, extensive medical interventions. Reimbursements also were higher partly because of patient coverage. That may be partly because Medicaid generally has the lowest reimbursements. The Medicaid population has been shrinking since the government ended a freeze on determinations as to whether Medicaid recipients still qualify based on income.
Tenet's hospital business also performed well, with same-hospital revenue up 8.2%, including a 5.7% increase per admission.
Tenet Stock
Tenet shares rose 4.8% to 145.34 in Wednesday stock market action, gapping above a 142.35 buy point from a flat base.
On Tuesday, THC rose 2.8%, participating in a rally sparked by strong results from hospital giant HCA Healthcare. Tenet's Tuesday action flashed an early entry, as THC powered clear of its 50-day moving average and broke a trendline sloping down from the June 12 peak.
Still, buying ahead of earnings comes with elevated risk. IBD recommends using an options trading strategy around earnings reporting periods.
IBD Stock Checkup ranks Tenet as the No. 1-rated stock in the Medical-Hospitals group based on a range of fundamental and technical factors.
HCA stock rose 4.55% on Tuesday, climbing back into a buy zone. Universal Health has rallied 2.85% this week, also retaking a buy point.
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