Triad's a Target to Some

For investors in Triad -- a hospital chain that's considered a ripe takeover target by some -- one Wall Street expert has issued a clear warning.

In a nutshell, Banc of America analyst Gary Taylor says this: Buyer, beware. The company could have bigger problems than rising bad debts from the uninsured.

Indeed, when downgrading the company's stock to sell this week, Taylor suggested that Triad has been playing accounting games and that the company's results -- while clearly lackluster -- could be even worse than they seem.

"For Triad in particular, we believe bad debt is a 'red herring,'" Taylor wrote. "We believe aggressive prior-period revenue recognition is the primary issue here -- not the 'societal' issue of the uninsured."

Triad stands behind its accounting and disagrees with Taylor's report. But Taylor warns that the company's reported profits continue to exceed its actual cash flow by an ever-widening margin.

Taylor doesn't necessarily buy Triad's big capital spending program as an excuse, either. Indeed, he says the company's capital spending -- when measured against its revenues -- is not all that excessive. He just wonders why capital expenditures exceed depreciation by so much.

Taylor offers three possibilities. First, he admits, Triad could be spending large sums on real growth opportunities that cut into cash flow without lowering earnings quality. But he points out that the company's cash flow per share has not grown along with the outlays.