Analysts Doubt HealthSouth Can Hang On

The HealthSouth (HRC Quote) story is playing out like a cruel April Fool's joke.

Fretting over an April 1 debt payment that could tip HealthSouth into bankruptcy, Bank of America warned investors Monday to sell their shares in the scandal-plagued therapy chain before the stock becomes worthless. At least four other research houses issued similar downgrades last week, following startling charges that HealthSouth has been inventing earnings almost as long as it has been reporting them to the public.

But helpless investors cannot heed Wall Street's warnings. The stock remains halted for the fourth straight session and could yet be delisted by the New York Stock Exchange before it trades again.

For now, the stock remains stuck at $3.91, the sum it last fetched before the company began crumbling less than a week ago. But HealthSouth bonds, which resumed trading on Friday, have plunged to half their pre-scandal price, and that points toward a likely restructuring.

According to the Securities and Exchange Commission -- which charged the company with numerous securities violations Wednesday -- HealthSouth and its top executive intentionally overstated earnings by at least $1.4 billion in the past four years alone. In the meantime, CEO Richard M. Scrushy sold $25 million worth of HealthSouth stock -- or half his stake in the company -- just ahead of a questionable earnings warning that sent the shares plunging last August. The SEC now maintains that HealthSouth contrived the sudden earnings shortfall to bring Wall Street's expectations down to the company's real earnings potential, sparing uncomfortable officers from certifying false financial statements in the future.

Now, Wall Street doesn't know what to think. Analysts generally view both HealthSouth's earnings power and its very future as questionable at best.

In a downgrade issued Friday, Prudential analyst David Shove called the potential for bankruptcy "strong" and predicted the stock would go to zero.