There's been a notable change in appetite for Tenet Healthcare Corporation (NYSE:THC) shares in the week since its yearly report, with the stock down 12% to US$29.25. Revenues of US$19b arrived in line with expectations, although statutory losses per share were US$2.24, an impressive 46% smaller than what broker models predicted. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. We thought readers would find it interesting to see analysts' latest (statutory) post-earnings forecasts for next year.
After the latest results, the 14 analysts covering Tenet Healthcare are now predicting revenues of US$19.1b in 2020. If met, this would reflect a credible 2.5% improvement in sales compared to the last 12 months. Earnings are expected to improve, with Tenet Healthcare forecast to report a statutory profit of US$2.51 per share. In the lead-up to this report, analysts had been modelling revenues of US$19.0b and earnings per share (EPS) of US$2.60 in 2020. Analysts seem to have become a little more negative on the business after the latest results, given the minor downgrade to their earnings per share forecasts for next year.
The consensus price target held steady at US$38.58, with analysts seemingly voting that their lower forecast earnings are not expected to lead to a lower stock price in the foreseeable future. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. Currently, the most bullish analyst values Tenet Healthcare at US$53.00 per share, while the most bearish prices it at US$30.00. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Tenet Healthcare shareholders.
Further, we can compare these estimates to past performance, and see how Tenet Healthcare forecasts compare to the wider market's forecast performance. Analysts are definitely expecting Tenet Healthcare's growth to accelerate, with the forecast 2.5% growth ranking favourably alongside historical growth of 0.7% per annum over the past five years. Compare this with other companies in the same market, which are forecast to see a revenue decline of 6.5% next year. So it's clear that despite the acceleration in growth, Tenet Healthcare is expected to grow meaningfully slower than the market average.
The Bottom Line
The biggest concern with the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Tenet Healthcare. On the plus side, there were no major changes to revenue estimates; although analyst forecasts imply revenues will perform worse than the wider market. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
With that in mind, we wouldn't be too quick to come to a conclusion on Tenet Healthcare. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Tenet Healthcare analysts - going out to 2022, and you can see them free on our platform here.
You can also view our analysis of Tenet Healthcare's balance sheet, and whether we think Tenet Healthcare is carrying too much debt, for free on our platform here.
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