Los Angeles Times – September 24, 2002

Tenet Says Earnings Will Top Estimates
Health care: Hospital chain expects its profit to be 5 cents a share higher than forecasts by analysts, who say it underscores the sector's strength.

By DON LEE, TIMES STAFF WRITER

Tenet Healthcare Corp., the nation's second-largest hospital chain and a bellwether of sorts for the health-care sector, said Monday that it expects to report stronger-than-expected earnings for its just-completed quarter.

The company, which operates 114 hospitals, including 40 in California, projected a profit of 68 cents a share for its quarter ended Aug. 31. That's a nickel ahead of analysts' estimates and represents a 39% jump from the same period a year ago, adjusted for a stock split and a change in accounting standards.

Tenet attributed the gains to strong revenue growth, driven largely by rising demand for more sophisticated and costly hospital services, and to reduced costs, including lower debt and interest payments.

Analysts were not surprised by Tenet's preview of results for its fiscal first quarter, which will be released Oct. 2. In recent quarters Tenet has been beating analysts' expectations, reflecting in part the strengthened hand of major hospital companies in negotiating with insurers.

Tenet is typically the first of the major hospital corporations to report quarterly earnings, and as such, analysts viewed Monday's guidance as a sign of continued strength for the health-care sector, particularly operators of urban hospitals such as Tenet and HCA Inc., the nation's biggest.

"It confirms that the fundamental outlook is still pretty good," said Adam Feinstein, a health-care analyst at Lehman Bros. in New York.

Monday's announcement by Tenet wasn't enough to offset the effects of another dreary day on Wall Street.

Shares of the Santa Barbara-based company slid 70 cents to close at $47.85 on the New York Stock Exchange. Still, Tenet's stock this year has outperformed the overall hospital sector, which itself has advanced about 7%, contrasted with a decline of more than 25% for the S&P 500.

Recently, some analysts have raised concerns that soaring health-care costs would lead to a backlash against big hospital companies. But most analysts don't see any immediate financial impact on companies such as Tenet.

Clifford Hewitt, an analyst at Legg Mason in Baltimore, said Monday that investor-owned hospitals have been obtaining on average 6% to 8% price increases from commercial insurers.

Coupled with a 2.7% boost in Medicare reimbursements this year, he said, "they continue to be in a good pricing environment and see solid growth in utilization."