Will Lower Volume Hurt Tenet Healthcare's (THC) Q4 Earnings?

Tenet Healthcare Corp (NYSE:THC) will report fourth-quarter results on Feb 26, 2017 after market close.

Last quarter, the company’s loss was narrower than the Zacks Consensus Estimate. Let us see, how things are shaping for this quarter. However, the figure compared unfavorably with adjusted earnings of 20 cents in the year-ago period. This underperformance a year ago primarily stemmed from a decline in California Provider Fee revenues, lower revenues and higher expenses associated with hurricanes Harvey and Irma. Expenses related to the company’s divestitures also contributed to the downside.

Factors to Consider

Tenet Healthcare’s fourth-quarter results are likely to reflect the industry-wide softness in volumes.

Factors such as payor initiatives to move volumes away from hospitals, rising deductibles and prevalence of high deductible health plans, increased proportion of hospital care to be paid by consumers, are driving away volumes and the same is likely to be seen in the to-be-reported quarter. These might further result in lower admissions inducing a decline in patient revenues.

However, the company’s Ambulatory segment has been performing well over the past many quarters. We expect fourth-quarter revenues to further benefit from this solid segmental performance.

Tenet Healthcare’s cost management program primarily comprised headcount reductions and the renegotiation of contracts with suppliers and vendors. Its enterprise-wide cost-reduction initiatives are likely to decrease expenses and favor margins.

Further, the company’s share buybacks during the quarter to be reported are expected to aid its bottom line.

Earnings Whispers

Our proven model does not conclusively show that Tenet Healthcare is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: Tenet Healthcare has an Earnings ESP of -3.51%. However, a company needs a positive ESP to be confident about an earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Tenet Healthcare Corporation Price and EPS Surprise

Tenet Healthcare Corporation Price and EPS Surprise | Tenet Healthcare Corporation Quote

Zacks Rank: Tenet Healthcare carries a Zacks Rank #4 (Sell), which lowers the predictive power of ESP. We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some stocks from the medical sector that you may want to consider as these have the right combination of elements to come up with an earnings beat this time around:

Universal Health Services, Inc. (NYSE:UHS) has an Earnings ESP of +1.96% and a Zacks Rank #2. The company is set to report fourth-quarter earnings on Feb 28. You can see the complete list of today’s Zacks #1 Rank stocks here.

Teladoc Inc. (NYSE:TDOC) , which is set to release fourth-quarter earnings on Feb 27, has an Earnings ESP of +28.98% and a Zacks Rank #3 .

Community Health Systems Inc. (NYSE:CYH) has an Earnings ESP of +2.94% and a Zacks Rank of 3. The company is set to announce fourth-quarter earnings on Feb 27.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple (NASDAQ:AAPL) sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.

Click here for the 6 trades >>