S&P: Tenet Healthcare Outlook Revised to Positive

The ratings action came more than a month after Tenet released its Q4 2020 earnings report.

S&P Global Ratings revised Tenet Healthcare's outlook to 'positive' based on better performance and affirmed its 'B' rating, the company announced Friday.

The ratings agency stated that the Dallas-based for-profit hospital operator is "improving as it adjusts to lower volume levels and builds its ambulatory surgery business, resulting in improving recurring free operating cash flow and declining leverage."

S&P stated that it expects Tenet's profit margins and cash flow to improve throughout the year due to better business performance and a growth uptick in the ambulatory surgery segment. Still, the company added that Tenet's volumes will likely remain below 2019 levels.

"The positive outlook reflects our belief that Tenet's progress in improving operating performance and cash flow, along with better diversity as it grows its ambulatory surgery business, could result in credit quality consistent with a 'B+' rating," the report stated. "Still, we believe there is some risk to our base case for lower leverage and better cash flow due to the uncertainty about the lingering effects of the pandemic, as well as some uncertainty around the company's long-term financial policies."

The ratings action came more than a month after Tenet released its Q4 2020 earnings report. The company reported improvements to its net income from continuing operations, adjusted EBITDA, and net operating revenues.

Related: Tenet Records $414M Net Income in Q4

S&P noted that Tenet will be repaying the Medicare Advanced payments and CARES Act funding provided by the federal government in response to the COVID-19 pandemic but added that the company has "sufficient cash on its balance sheet" to repay.

Tenet is also expected to report a free cash flow of $400 million after NCI but before Medicare Advanced payments and deferred tax repayments, according to S&P, along with an overall margin increase of about 100 basis points compared to 2019.

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