Tenet's Dicey Rehab

'Better than the best'

Tenet itself is hoping for the best.

Notably, the company is banking on a slew of capital improvements to boost inpatient admissions by 1.5% -- and outpatient admissions by an even stronger 2% -- at its remaining core facilities next year. Sheryl Skolnick, senior vice president of CRT Capital Group, portrays the first target as unrealistic and the second as "better than the best in the industry." She doubts that Tenet can hit its ambitious profit and margin goals as a result.

Over the next three years, she notes, Tenet hopes to generate a total of $1.3 billion in earnings before interest, taxes, depreciation and amortization. But to do so, she says, the company will have to grow EBITDA -- which totaled a negative $150 million in 2005 -- by 200% to 300% during that period.

If the company can eventually produce that kind of EBITDA, Skolnick estimates that its stock could be worth about $9 a share in two years and $11 a share in three. But she urges investors to steer clear of that gamble right now.

Indeed, Skolnick has been telling her clients to sell the stock since it fell through the $8 level two months ago.

"Our sell thesis hasn't changed one bit," she announced last week. "We said 57 hospitals were the core; we got them. We said that the earnings power of the 57 is smaller than the bulls think, and we got that. We said that the turn could cost more and take longer, and we got that. [Thus], we'll stick with our sell rating and use any enthusiasm over the settlement to reiterate" that stance.