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Why Tenet Healthcare Shares Are Soaring 20.5% Today

By Todd Campbell - Apr 8, 2020 at 1:09PM

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There's optimism over the possibility of fewer COVID-19 hospitalizations than expected, which is sparking a rally in hospital stocks.

What happened

After Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said new COVID-19 cases are nearing their peak and hospitalizations could slow, shares of Tenet Healthcare (THC 2.71%) skyrocketed 20.5% as of 12:30 p.m. EDT on Wednesday.

So what

The coronavirus has been diagnosed in 1.45 million people worldwide, including 400,000 Americans. Respiratory complications caused by COVID-19 have resulted in over 40,000 hospitalizations in the U.S., and unfortunately nearly 13,000 deaths as of Wednesday, according to the Johns Hopkins University School of Medicine.

A person draws an upward trendline on a large piece of paper.

Image source: Getty Images.

The rising rate of hospitalizations has increased concern that COVID-19 care provided by hospitals could strain budgets, particularly because higher-margin elective surgeries have been put on hold in many areas where Tenet Healthcare operates.

In Q4, Tenet Healthcare reported a 4% year-over-year increase in revenue to $4.8 billion because of increases in revenue per patient and hospital admission. On a same-hospital basis, excluding divested facilities, adjusted admissions improved 1.9%. Net income in the quarter totaled $0.02 per diluted share, a big improvement from its $0.05 per share net loss in Q4 2018.

Now what

Fauci's statements came with a reminder that a potential decline in hospitalizations will precede a peak in COVID-19 deaths because many people remain on ventilators in intensive care units. Furthermore, Fauci cautioned against underestimating the potential risk the virus still poses, saying: "Now is not the time to pull back at all. It's the time to intensify."

Nevertheless, if a peak in cases and hospitalizations results in a return to normal operations at Tenet Healthcare sooner than previously anticipated, it would be good news for the company. Financial uncertainty caused the healthcare company to withdraw its prior revenue and profit guidance for the year on April 2. And on April 3, it raised $700 million in capital through a bond offering to shore up its balance sheet. 

Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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