Tenet Shares Jump 21% on News of Operations Improvement

Shares of Tenet Healthcare Corp., the No. 2 U.S. hospital chain, rose 21% Thursday after it told investors its operations are improving, despite a drop in its fiscal third-quarter profit.

The Santa Barbara-based company said net income fell 16% to $124 million, or 40 cents a share, in the quarter ended Feb. 28, from $148 million, or 47 cents, a year earlier. Tenet was expected to earn 43 cents, the average estimate of analysts polled by First Call Corp.

Revenue rose 9% to $2.8 billion from $2.56 billion a year earlier.

Tenet said its turnaround plan for eight bankrupt Philadelphia-area hospitals acquired last year is ahead of schedule. It also disclosed to some investors and analysts in a conference call that admissions rose 5% in February and 6.5% in March and that it would have lower reductions in Medicare, the government health insurance plan, next fiscal year.

Tenet shares rose $3.69 to close at $21.13 on the New York Stock Exchange. Before the conference call, open only to analysts and certain investors, the shares touched $16, their lowest level since 1995.

While bad debt was 6.7%, up from a year earlier, it was down from the second quarter, when it was 7.2%, the company said.

Same-facility admissions fell in the third quarter by 0.6% because of a less-severe flu season, but it rose in the first two months of the current quarter, Tenet told investors.

Overall admissions grew by 7.7% because of the addition of the Philadelphia hospitals. This is the first quarter to include three months of operation of those new Tenet hospitals.

“They had a lot of things working against them simultaneously,” said Jeffrey Villwock, a Robinson-Humphrey Co. analyst with a “long-term buy” rating on Tenet. “They’ve got Medicare reductions and slower payments from HMOs as well as the Philadelphia turnaround. Given they had two weak months of admissions, that’s a lot to overcome.”