What happened
After reporting its fourth-quarter and full-year financial results and offering up guidance for 2017, shares of Tenet Healthcare (THC 2.32%) have fallen 14.6% as of 2:30 p.m. EST on Tuesday.
So what
Tenet Healthcare's top-line and bottom-line results in the fourth quarter failed to spark investor optimism. The company's $5.2 billion in net operating revenue was 3.7% lower than last year, and its earnings per share of $0.06 missed the average estimate by $0.15.
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Digging a bit deeper into the numbers, however, suggests the quarter might not have been as bad as the headline results indicate. After removing the negative impact to sales associated with hospitals it has sold in the past year, net operating sales for its hospital operations improved 3.2% over last year to $3.78 billion. The increase was driven by 3.7% growth in net patient revenue per adjusted admission, slightly offset by a 0.5% decrease in adjusted patient admissions.
Similarly, revenue in the ambulatory segment increased 5.9% on a same-facility basis, with cases climbing 1.7% and revenue per case improving 4.1%. Tenet Healthcare's Conifer's segment sales were up 4.7% to $402 million in the quarter.
The company's provision for doubtful accounts in the quarter totaled $354 million, or 6.8% of revenue before bad debt. Last year, the provision for doubtful accounts was $391 million, or 7.2% of revenue before bad debt. Overall, the company's provision for doubtful accounts, charity care write-offs, and uninsured discounts totaled $1.33 billion in Q4, down from $1.42 billion last year.
Now what
Tenet Healthcare's guidance did little to excite investors. Management expects revenue between $19.7 billion and $20.1 billion in 2017, which would translate into adjusted free cash flow of $600 million to $800 million and adjusted diluted earnings per share (EPS) from continuing operations of $1.05 to $1.30. That forecast is below industry watchers' outlook for $1.97 in adjusted EPS.
Investor optimism is further dampened by the potential repeal of Obamacare. Bad debt has fallen in lockstep with the country's uninsured rate since Obamacare's passage. Therefore, repealing Obamacare could cause bad debt expenses to increase significantly, unless a replacement maintains current insurance enrollment. With lackluster guidance and uncertainty regarding future write-offs and charity care, investors are probably best off focusing on other investment ideas.
