Tenet Healthcare Rises Despite Worrisome Trends

Tenet (THC Quote - Cramer on THC - Stock Picks) continued to struggle during the sector's healthiest season of the year.

The ailing hospital chain posted weak fundamentals and even missed the updated earnings guidance it issued just last week. The company saw net revenue -- which was hit by soft admissions and weak managed care pricing -- slip 2.9% to $2.67 billion in the latest quarter. Special charges, mostly related to hospitals the company hopes to sell, sent first-quarter losses rocketing more than sixfold to $122 million. And a last-minute arbitration judgment, issued in favor of a managed care payer, forced the company to tack a penny onto its expected per-share loss.

Excluding special items, however, Tenet posted a first-quarter operating profit of 5 cents a share that was 2 cents better than the consensus estimate. During a conference call Tuesday with analysts, Tenet CEO Trevor Fetter pointed to the first-quarter results as "the first tangible evidence" that the company is making progress on its ambitious turnaround plan.

Tenet investors continued to gamble big on the company's ultimate recovery. Shares of the giant hospital chain surged 4% to $12.38 on Tuesday afternoon, setting a two-month high and extending a rally that heated up when the company preannounced quarterly results late last month.

Poor Condition

Still, several industry experts diagnosed the quarter as a poor one.

UBS analyst Kenneth Weakley, who first exposed Tenet's unsustainable growth strategy 18 months ago, quickly noted declines in revenue and cash flow. He also declared Tenet's cost controls -- celebrated Tuesday by the company itself -- as simply "OK" and "not yet indicative of stability." But he lists his primary concern as Tenet's potential loss of doctors who refer business to the company's hospitals.

Tenet is under intense government scrutiny for, among other things, paying possible kickbacks to its referring physicians. Despite market rumors to the contrary, however, Tenet said on Tuesday that it has suffered no meaningful deterioration in its relationship with doctors. Still, the company -- like others throughout the industry -- is losing some lucrative outpatient business to new doctor-owned facilities.

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