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Tenet Expects to Beat Analysts' Estimates

September 13, 2000|From Bloomberg News

Tenet Healthcare Corp., the No. 2 U.S. hospital chain, on Tuesday said fiscal first-quarter profit will beat estimates because its hospitals admitted more patients and got higher insurance reimbursements than expected.

Santa Barbara-based Tenet said profit from operations is likely to top 44 cents a share for the quarter ended Aug. 31, the average estimate of analysts surveyed by First Call/Thomson Financial. Tenet earned 39 cents a share in the year-earlier quarter.

Admissions to hospitals Tenet owned more than a year rose 4%. Unlike many other hospitals, Tenet said it was able to charge managed-care insurers more to cover costs of patient care, and it reduced debt by $240 million in the quarter. A year earlier, debt rose $130 million.

"They've reduced their debt; their operations are more efficient. They've done just what you want to see from a hospital company," said Ken Zschappel, a senior portfolio manager at AIM Management Group, which owned about 4.1 million Tenet shares as of June 30.

Tenet shares rose $2.69 to close at $34.31 in trading on the New York Stock Exchange, a 52-week high. The shares have risen 46% so far this year.

Other U.S. hospital stocks rose on the strength of Tenet's forecast. The Standard & Poor's SuperCap Hospitals Healthcare Index rose 7%.

"This bodes well for the rest of the [hospital] group," said PaineWebber Inc. analyst Andrew Gitkin.

The nine publicly traded hospital companies could reap $125 million in extra profit in 2001 if Congress raises Medicare reimbursement payments by $20 billion to $30 billion, Lehman Bros. analyst Adam Feinstein said.

Hospital companies are likely to report higher profits in the third quarter, he said, and increased Medicare payments would begin to show up in fourth-quarter earnings.

Tenet said it expects to report first-quarter results Oct. 3. The announcement was made to comply with Securities and Exchange Commission regulations that require companies to release important information to investors and analysts at the same time, Tenet said. Company executives are meeting with big investors in New York this week.

Tenet sold 20 of its weaker hospitals in its last fiscal year and is more efficient than before, said ABN Amro Inc. analyst Peter Costa. The company also has survived the worst of Medicare cuts under the Balanced Budget Act of 1997, he said.

"The company had shown four very strong quarters of improving fundamentals, with pricing growing much faster than their labor costs or other operating costs," said Legg Mason Wood Walker Inc. analyst Clifford Hewitt, who has a "strong buy" rating on Tenet.

The news comes as Tenet, which owns 110 hospitals, faces a proxy fight from a group of shareholders that says the company needs to cut executive pay and other expenses to boost its profit.

"I don't think this has anything to do with the proxy challenge," said Costa, who rates Tenet a "top pick." "I think the turnaround began three or four quarters ago."

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Positive Prognosis

Shares of Tenet Healthcare have more than doubled in the last year, rising nearly 9% Tuesday on a strong earnings forecast. The stock has not been this high since June 1998, when cutbacks in Medicare spending started to hurt industry profits.

*

Monthly closes and latest for Tenet Healthcare (THC) on the NYSE

Tuesday close: $34.31, up $2.69

Source: U.S. Small Business Administration

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