Tenet's Dicey Rehab

Tenet's remaining major market -- which stretches across the states of Alabama, Georgia, North Carolina and South Carolina -- looks much healthier. Those 10 hospitals, by themselves, generate almost 20% of total company revenue and higher profit margins than most facilities.

Still, with the majority of its hospitals losing money, Eddleman wonders how long Tenet can fund its operations -- especially with a stepped-up capital spending program -- and still take care of its giant interest payments. He sees an unsustainable situation and, therefore, recently warned investors one last time to sell Tenet's bonds before dropping his coverage of the company altogether.

Loss of value

Even analysts who believe that Tenet will survive in some fashion -- as most still do -- find the company worth less now than before.

Kenneth Weakley, the UBS analyst who first exposed the pricing games that triggered Tenet's downfall, this week lowered his longstanding $7 price target on the company's stock to $5.25 a share. Weakley based his new target not on the company's earnings projections, which he considers aggressive, but rather on a metric often used to value distressed hospitals in the private equity market. Basically, he no longer analyzes Tenet as if it were a publicly-traded hospital chain at all.

Certainly, he sees no opportunity like that awaiting investors when rival hospital giant HCA (HCA Quote) emerged from its own scandals a few years ago.

"HCA's recovery from its DOJ problems in 1997 were aided significantly by the lucky fact that hospital admission growth was on the rise, bad debt was not an issue, managed care pricing was improving and government reimbursement was by 1999 substantially better," noted Weakley, who has recommended selling Tenet's stock for years. "For THC to recover, however, much must proceed in the right direction."