A freshly-filed Form 4 with the U.S. Securities and Exchange Commission disclosed that Larry Robbins’ Glenview Capital acquired 500,000 shares of Tenet Healthcare Corp. (NYSE:THC) at an average price of $48.39 per share, lifting its holding to 15.99 million shares. Earlier this month, Glenview Capital also disclosed purchasing 697,917 shares of the company, so the recent acquisitions clearly suggest Larry Robbins’ confidence in the future outlook of Tenet.
Glenview Capital Management is a New York-based hedge fund founded in 2001 by Larry Robbins, who named the fund after the Chicago suburb where he used to play hockey as a child. The investment firm’s assets under management have increased to $11.8 billion from $4.5 billion back in 2012. Many believe that Robbins made an excellent bet on the significance of Obamacare, which was seen as a catalyst for M&A activity. Reportedly, Glenview Capital has realized paper gains of over $3.2 billion since the fund started betting on hospitals and insurers four years ago, mainly on expectations that consolidation in the industry was approaching. Robbins’ flagship fund has generated an average annual return of 26% since the beginning of 2012. As stated by the fund’s 13F filing for the June quarter, Glenview Capital manages a public equity portfolio worth $25.25 billion as of June 30, with a sizable 46% of that wealth invested in healthcare stocks.
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Tenet Healthcare Corp. (NYSE:THC) is a healthcare services company that primarily operates acute care hospitals and related healthcare facilities in the United States. The shares of Tenet have embarked on a strong downtrend since mid-July, and have now lost nearly 9% year-to-date. It’s not quite evident what stands behind the stock’s free-fall, but Larry Robbins and his team seem to believe that the downtrend is transitory. In the meantime, Israel Englander’s Millennium Management, one of the hedge funds we track, substantially boosted its stake in Tenet Healthcare during the second quarter, building up a stake of 1.69 million shares.
Merger and acquisition activity has been very strong in the U.S. healthcare provider industry over the last few years, as companies started to recover from the reduced profitability and operating margins brought about by the financial crisis. The Affordable Care Act has also played a crucial role in the wave of hospital industry consolidation in recent years. Companies in the industry have been attempting to enhance economies of scale so as to lower their costs, which could in turn allow them to deal with the pressure on revenues. Tenet Healthcare has been growing as well; the healthcare services company has grown to 80 hospitals from 50 in the last two years and to 150 ambulatory surgery centers from 25. Earlier this summer, Tenet completed a joint venture transaction with Welsh, Carson, Anderson & Stowe that combines the short-stay surgery and imaging center assets of both Tenet and United Surgical Partners International to create a leading short-stay surgery platform in the United States. However, all of the mergers and other consolidation deals seem to have had a short-term negative impact on the company’s financials. Tenet recently announced that its loss for the second quarter widened to $61 million from the loss of $26 million reported a year ago, partly owning to a $136 million in write-downs, restructuring charges, acquisition-related costs, and other one-time items. The weak financial results for the second quarter have also put some downward pressure on the company’s stock.
Tenet Healthcare expects to deliver earnings per share of $0.49 and revenue of $4.65 billion to $4.85 billion for the current quarter, whereas the analysts polled by Thomson Reuters anticipate EPS of $0.40 and revenue of $4.56 billion. It’s also worth mentioning that the company lowered its earnings estimate for the year, with it expecting to post EPS of $1.32 to $2.21, compared to the previous estimate of $1.32 to $2.40. However, Tenet believes that it will be able to generate higher revenues than previously-anticipated and raised its revenue guidance to the range of $18.1 billion to $18.5 billion, from the previous range of $17.4 billion to $17.7 billion.
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