What happened

After reporting that second-quarter revenue was less than industry watchers' were hoping for and that admissions to its hospitals fell, shares of Tenet Healthcare (NYSE:THC) were losing 16.7% of their value at 3:45 p.m. EDT Tuesday.

So what

Revenue last quarter fell 6% year over year to $4.5 billion as hospital admissions fell 2.3% and net operating revenue in its hospital operations segment fell 8.6%. The revenue was $60 million light of analyst forecasts and at the low end of its guidance for between $4.475 billion and $4.675 billion exiting Q1.

A man sits on a curb holding his head in his hands in front of a wall displaying a declining stock price.

Image source: Getty Images.

The results look a bit better once you adjust for businesses that Tenet Healthcare has divested. On a same-hospital basis, adjusted admissions were only down 0.2%. Prices were also firm, with net patient revenue growing by 3.2% to $3.432 billion.

Tenet Healthcare also reported that sales in its ambulatory segment were up 12.5% to $531 million in Q2 and sales for its Conifer segment decreased 3.5% to $386 million.

On the bottom line, Tenet Healthcare's net income improved to $24 million, or $0.23 per diluted share, from a net loss of $56 million, or $0.56 per diluted share, one year ago.

Now what

The company's guiding for third-quarter revenue and adjusted EPS of between $4.3 billion and $4.5 billion and $0.10 to $0.24, respectively. For the full year, it expects revenue of between $17.9 billion and $18.3 billion and adjusted EPS from continuing operations of $1.54 to $1.88. The full-year revenue outlook is unchanged from the first quarter and the bottom-line forecast is up from prior estimates for between $1.36 to $1.70.

The quarter marked the first time in two quarters that management didn't over-deliver on its top line. Given that Tenet Healthcare's shares were recently hitting new highs, investors appear to be concluding that it could struggle to maintain its profit strength without a meaningful uptick in admissions, and as a result, share prices are too rich.