NEW YORK—Tenet Healthcare Corp. reports earnings for the fourth quarter on Tuesday. The following is a summary of key developments and analyst opinion related to the period.
OVERVIEW: Shares of Tenet Healthcare, which owns or leases physician practices, insurance companies and other health care businesses, rose sharply during the fourth quarter as the company continued to sign new contracts and spin-off units to revive its business.
Tenet has aggressively cut costs, eliminating nearly 1,500 jobs in the past year. It has also shed some of its poorest-performing hospitals and services to focus on more profitable lines such as neonatal and cancer treatment.
Like other hospital operators, Tenet is pressured by a large number of uninsured patients, who are less likely to pay their bills.
In November, Tenet said it signed a two-year contract with UnitedHealth Group that gives the health insurer's members access to acute care in Tenet hospitals. Financial terms of the deal weren't reported, but a Tenet spokesman said a key part of the contract was higher reimbursement rates for certain hospitals. Tenet has been trying to boost revenue with such bonuses.
In October, Tenet said it would sell an acute care hospital in Texas to the newly formed Shelby Medical Holdings LLC for about $2 million.
BY THE NUMBERS: Analysts polled by Thomson Financial, on average, forecast a fourth-quarter loss of 3 cents per share on $2.24 billion in revenue.
ANALYST TAKE: In a recent note to investors, Stifel Nicolaus & Co. analyst Robert Hawkins said he expects "an inline to slightly weak quarter for Tenet as the depressed Florida region could pressure bad debt margins for the company's urban facilities." He maintains a "Hold" rating on Tenet shares.
Lehman Brothers analyst Adam Feinstein saw very few bright spots for the sector during the year.
"In our opinion, the best thing about 2007 for the health care facilities sector is that it is over," said Feinstein in a note to clients late last month. "It was the fifth straight year of a difficult industry operating environment characterized by rising bad debt expense and modest volume growth." However, he did note that reimbursement continues to be favorable.
In January, Feinstein upgraded shares of Tenet to "Equal weight" from "Underweight" and said near-term earnings may be better-than-expected.
WHAT'S AHEAD: Hospital operators will be pressured by the weakening U.S. economy in 2008, analysts say. Already, companies in the sector have reported lackluster results for the fourth quarter.
Hospital operator Community Health Systems Inc. recently reported it swung to a fourth-quarter loss on a surge in costs, mainly associated with the buyout of Triad Hospitals.
Results for the 2007 quarter reflect a change in estimates of contractual and bad debt allowances, based on the Triad buyout. The company said new estimates indicate a lower rate of account collections, due to the increase of patients qualifying for charity care and lower enrollment in certain state Medicaid programs.
Health care services company Kindred Healthcare Inc. said profit fell 26 percent in the fourth quarter, as the spin-off of the company's pharmacy unit pulled down revenue.
STOCK PERFORMANCE: Shares of Tenet jumped about 51 percent during the fourth quarter but lost roughly 27 percent during 2007.
