Market Overview

Tenet Plans to Sell Conifer And Reduce Costs, Issues 2018 View


Tenet Healthcare Corporation THC recently announced that it would be undertaking three additional initiatives as an extension to its goal to improve the overall financial performance and enhance shareholders' value. These initiatives include strengthening of its previously announced cost reduction plan, updating the ongoing process of its board refreshment and finding a buyer for its Conifer segment. Also, the company has issued 2018 guidance.

Tenet looks forward to accelerate the overall growth of the company by improving the quality of its offerings, curtailing unnecessary costs, adding to margins and free cash flow, and reducing the overall debt burden. The company also remains committed toward enhancing shareholders' value,which is supported by its strong liquidity.

Let us discuss on the company's recently chalked out action plans:

Potential Sale of Conifer

Tenet's Conifer has been a great performer, capitalizing on its strong growth potential and solid free cash flow. This arm of the company contributed to about 5% of net operating revenues during the first nine months of 2017. Tenet's main objective behind putting Conifer up for sale is to maximize the value of this segment for its shareholders. Through the divestment, the company also intends to offer quality health solutions to its clients that include Tenet's own hospitals.

Tenet plans to take a decision on Conifer in the first half of 2018, and it may retain some or all of the unit.

Further Cost Cuts

Tenet is expanding its cost-cutting measures. Earlier, the company targeted to reduce annual operating expenses by $150 million through its cost reduction initiatives. Now the company has increased the target by $100 million and anticipates making $250 million of annualized run-rate savings by the end of 2018.

Board Reshuffle

Tenet's board is going through a reshuffle since Aug 31, 2017 for ensuring the right mix of opinions, skills and experience aimed at enhancing the future value of the company.

To date, three new independent directors with significant healthcare, financial and operational expertise have been appointed. Tenet said that the board will continue its search for additional independent directors who can further enhance the board's expertise.

2018 Guidance

Tenet expects net operating revenues to range within $17.8 billion to $18.2 billion. This compares unfavorably with the range of $18.9 billion to $19.1 billion guided for 2017.

Adjusted diluted earnings per share is expected to remain within the band of $1.07 to $1.36. This however, compares favorably with the range of 59 cents to 74 cents projected for 2017.

For 2018, the company expects to generate net income from continuing operations of $65 million to $70 million. This reflects significant improvement from the company's projection of net loss ranging between $372 million and $367 million for 2017.

Tenet expects operating cash flow of $1.245 billion to $1.450 billion for 2018. This also compares favorably with the 2017 projection of $1.0 billion to $1.3 billion.

Share Price Performance

Year to date, shares of Tenet have gained 1.3%, underperforming the industry's rally of 7.5%. We expect the stock to witness better days ahead once the company's performance improvement plan is put into action.

Zacks Rank and Stocks to Consider

Tenet carries a Zacks Rank #3 (Hold).

Investors interested in the Medical sector can consider some better-ranked stocks like Triple-S Management Corporation GTS, Wellcare Health Plans Inc WCG and Magellan Health, Inc. MGLN. All the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here

Triple-S Management delivered positive surprises in two of the last four quarters, with an average beat of 74%.

Wellcare Health delivered positive surprises in each of the last four quarters with an average beat of 64.3%.

Magellan Health delivered positive surprises in three of the last four quarters, with an average beat of 0.9%.

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Tenet Healthcare Corporation (NYSE: THC): Free Stock Analysis Report
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The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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