Look Closer, Tenet Healthcare Is Making More Progress Than It Seems

At first glance, Baird said Tenet Healthcare Corp (NYSE: THC)'s second-quarter result is better than it looks. The firm clarified that the optics of the print, guide-down and complexity once again overshadowed progress.

Overall In-Line Results

Analyst Whit Mayo noted Tenet Healthcare's second-quarter revenues of $4.80 billion missed the consensus estimate of $4.90 billion and EBITDA of $570 million also missed the consensus of $574 million, although exceeding his estimate by 3.4 percent.

Additionally, the analyst said Acute really exceeded his expectations. Overall, the analyst said the results were mostly in the mid-point of the company's guidance range.

Looking forward, Baird noted that the company lowered its core EBITDA guidance by $35 million, net of divestiture impact, and the EBITDA guidance by $75 million in aggregate.

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Segmental Review

On Acute, the firm noted that second-quarter Acute revenues of $4.09 billion missed its estimate by 0.9 percent but EBITDA of $346 billion beat its $326 million estimate. Normalizing for the CA provider fee, Humana Inc (NYSE: HUM), pension accounting and EHR incentives, the firm estimates that second quarter same store EBITDA rose 2.5 percent. Additionally, the firm said the midpoint of the third-quarter guidance implies Tenet Healthcare's core acute EBITDA would grow about 5 percent.

Meanwhile, the firm thinks Conifer was a little weak and was impacted by Houston divestitures. On the other hand, the firm said the Ambulatory segment continued to be the bright spot.

Concluding, Baird said, "2Q has a lot of real progress. Acute core growth is outpacing peers, acuity gains continued across the enterprise, divestitures continue, and USPI softened but is performing well."

As such, Baird maintains its Outperform rating and $23 price target on the shares of Tenet Healthcare.

At time of publication, shares of Tenet Healthcare were slumping 11.74 percent at $14.73.