Analysts Doubt HealthSouth Can Hang On

"Because of the accounting fraud allegations, HealthSouth's credit sources are rapidly evaporating," Shove explained. "With its source of credit evaporated and debt due, we believe HealthSouth is facing a financial crunch."

After the fraud allegation erupted last week, HealthSouth's lenders halted the company's access to a $1.25 billion bank facility. The company is now scrambling to satisfy a $350 million convertible debt payment that comes due April 1.

Shove, for one, doesn't know whether HealthSouth will have the cash to meet that obligation and skirt a bankruptcy filing.

"Since HealthSouth's financials are questionable, we do not know how much money the company has available," he said. "Although HealthSouth has assets, which may have value, we think the shareholders will have to wait years to receive any money as the creditor negotiations unfold."

In the meantime, Shove is predicting that HealthSouth will report no earnings this year or next, even under a best-case scenario. But like many of his peers, he is quick to point out that he has no trustworthy financial statements on which to base his calculations.

HealthSouth itself came forward Monday to warn investors that its financial statements are unreliable. However, it insisted that it's taking serious steps to restore the company's stability.

The board's "special investigative committee" has hired outside experts to evaluate the SEC's charges and explore the financial and legal strategies available to the company.

"HealthSouth is working very hard to stabilize this situation, and adding this level of outside expertise to the team at this time will make significant strides in our ability to achieve some forward momentum," said acting Chairman Joel Gordon. "In the meantime, our business is continuing to operate in ordinary course."

HealthSouth is the nation's largest provider of outpatient surgery and rehabilitative health care services. At its peak in 1999, the company's stock traded for $30 a share. The stock was already down 64% for the year ahead of last week's fraud allegations.