Tenet Healthcare Corp. (THC) is set to report first-quarter 2014 results on May 5, 2014. Last quarter, it posted a 26.47% surprise. Let’s see how things are shaping up for this announcement.
Factors this Past Quarter
Tenet Healthcare’s rising debts is a matter of concern. Tenet Healthcare has been continuously issuing debts to repay earlier debts. Consequently, interest expenses are also on the rise. In the past quarter, the company issued 5-year senior unsecured notes worth $600 million which resulted in a further increase in interest expenses. High financial leverage not only dampens the balance sheet but also makes future debt accessing difficult.
However, on the brighter side, Tenet Healthcare has engaged in partnerships with entities like University Health System and Yale New Haven Health System in the past quarter that is likely to enhance its operations. Further, the collaboration with Aetna Inc. (AET) in Feb 2014 is slated to expand the membership base of the company and enhance revenues. Nevertheless, persistent inpatient revenue pressure and a company guided inpatient volume trend of (2)–0% in 2014 raises apprehension.
Earnings Whispers?
Our proven model does not conclusively show that Tenet Healthcare is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for an earnings beat to happen. That is not the case here as you will see below.
Negative Zacks ESP: That is because the Most Accurate estimate stands at (20) cents while the Zacks Consensus Estimate is pegged at (15) cents, making the difference -33.33%.
Zacks Rank #4 (Sell): Tenet Healthcare’s Zacks Rank #4 lowers the predictive power of ESP as when combined with a negative ESP, it makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially if the company sees zero or negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Humana Inc. (HUM) with Earnings ESP of +1.55% and Zacks Rank #3 (Hold).
Intrexon Corp. (XON) with Earnings ESP of +22.22% and Zacks Rank #3.
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